In December last year, the Scottish Government introduced the First Home Fund scheme to help first-time buyers purchase their first home, either new or previously owned, by providing up to £25,000 as an equity loan.
Now, the Scottish Government is extending the First Home fund for another year. In June this year, they added £50 million to the existing £150 million budget as a response to reduced availability of higher loan-to-value mortgages amidst the Covid-19 crisis.
Continue reading as we explain what this new First Home Fund means for first-time buyers, explore the other affordable housing schemes Scotland offers, and the impact of Covid-19 on the first-home property market.
What is the Scottish Government’s First-Time Buyer Scheme?
Run by the Scottish Government, the First Home Fund aims to help first-time homebuyers purchase a property by offering up to £25,000 towards the purchase of both new builds and existing properties.
Any first-time buyer (who doesn’t own, or has previously owned, a property in Scotland) is eligible to take part in the scheme.
To take part, you must provide a minimum deposit of 5%, and your mortgage rate must be at least 25% of the purchase price. Although the Scottish Government will have an equity share in the property, the first-time buyer will own the property outright and will not be required to pay any monthly payments, nor any interest from their First Home Fund loan.
Has the First-Time Buyer Scheme Been Successful in Scotland?
While the First Home Fund is still in its early days, Scotland’s Housing Minister, Kevin Stuart, hailed it as a “huge success” that’s helped “thousands of people own their first home.”
Despite a global pandemic and ongoing disruptions to mortgages prices, the property market found a new lease of life as sales resumed over the summer. The rise in sales prompted the Scottish Government to increase the First Home Fund budget to £200 million to ensure first-time buyers could still access the market.
Due to high uptake during the summer, the First Home Fund closed to new applications on Friday 2nd October 2020. Although, the Government promises the scheme will re-open for purchases in April 2021 until March 2022.
Government Loan Schemes for First-Time Buyers
As the First Home Fund is not available at present, first-time buyers may need to look elsewhere for financial help to buy their first property. Other popular government loan schemes available to first-time buyers include:
Help to Buy
The Help to Buy (Scotland) Affordable New-Build Scheme could help someone who’s looking to buy a new-build home, but can’t afford the total cost.
First-time buyers or existing homeowners can take part in the scheme, receiving a loan of up to 15% of the property price for homes up to £200,000. Scotland was due to end the Help to Buy scheme in March 2021 but announced in June that they would extend the scheme by a year due to the pandemic.
LIFT Open Market Shared Equity Scheme
The Low-cost Initiative for First Time Buyers (LIFT) allows applicants to receive up to 40% funding towards the price of an open market home. Link Housing administers the scheme throughout Scotland on behalf of the Scottish Government.
Through the LIFT scheme, the Scottish Government contributes between 10% and 40% towards the price of a buyer’s chosen home on the open market. When the property is sold, 30% of the sale price is returned to the Government. Buyers can choose to increase their equity share to 100% in most areas.
The LIFT scheme is available to first-time buyers, social workers, war veterans, over 60s, and others who can demonstrate a housing need. If someone can raise more than 90% of the value of the property, they won’t be eligible for the scheme.
How Has Covid-19 Changed the Land and Building Transaction Tax?
Alongside the new First Home Fund, the Scottish Government reduced the rates of Land and Buildings Transaction Tax (LBTT) on 15th June. By raising the LBTT threshold from £145,00 to £250,000, the Government ensured 80% of buyers pay no LBTT and those buying a home over £250,000 save £2,100.
With this move, the Scottish Government hopes to help increase housing market activity, boost the construction sector, stimulate the Scottish economy and remove uncertainty from the market to encourage people to buy a property. After three months of almost no activity during the lockdown, the LBTT reduction was a welcome stimulus to the property market.
Impact of Covid-19 on First-Time Buyers
The Covid-19 crisis brought a wave of challenges to the property sector. Lockdown prevented people from viewing properties, and a shaky economy made buyers pause their hunt for a new home.
Before the pandemic, most lenders only required a minimum 5% deposit for a mortgage. Now, many lenders have raised their minimum deposit amount to 15%, which may prevent first-time buyers from purchasing a home.
To ensure first-time buyers can stay in the property game, the First Home Fund only demands a 5% deposit from the buyer. First-time buyers can then use the government loan scheme to reach 15% of the property’s value, making them eligible for more mortgages. For this reason, the First Home Fund is particularly useful to first-time buyers in the current circumstances, as they may otherwise struggle to save a 15% deposit.
Extending the First Home Fund will also provide more confidence for consumers and more investment certainty for businesses — causing a positive ripple effect across the wider housing sector and economy.
Ease Your First-Time Buyer Experience with Home Report Company
Being a first-time home buyer can be scary and filled with question marks. That is why the team of Chartered Solicitors at Home Report Company are available to take the stress out of home buying. We work around your schedule to give you an enjoyable experience of buying your first home.
If you have any questions, please contact us by calling 0131 608 0175 or emailing info@homereportcompany.co.uk.
