For many prospective homeowners, the most significant barrier to entering the property market is saving a sufficient deposit. As a response to the continuing affordability pressures, the Scottish Government has announced a new first home fund scheme which is aimed at assisting first-time buyers in Scotland that are struggling to get on the property ladder.
Announced as part of First Minister John Swinney’s priorities for tackling Scotland’s housing crisis, the First Home Fund will open by the end of June, helping eligible first-time buyers secure a contribution towards a deposit on their first home in Scotland.
The scheme is intended to help those who are eligible by reducing the initial financial burden associated with buying a home and improving affordability for many people across Scotland who currently rent and are unable to save to buy.
What Do We Know About the First Home Fund Scheme?
The proposed shared-equity scheme has been introduced by the Scottish Government to help first-time buyers purchase a first home without needing to fund the entire cost of a deposit themselves.
Key features announced so far include:
- It will be available to all first-time buyers to apply for;
- The scheme can be used for the purchase of a property valued at up to £300,000
- The property must be used as the applicant’s main residence;
- An interest free contribution of up to £10,000 may be made by the Scottish Government;
- There are no monthly repayments or interest charges in respect of the contribution from the Scottish Government and no interest will accrue;
- The Scottish Government will hold an equity share in the property to be repaid at point of future sale or transfer;
- When the property is later sold, transferred or re-mortgaged the percentage of equity contribution will be repaid to the Scottish Government based upon the market value at that time. This means you could repay more than you borrowed if the value of the property increases.
Who is Likely to Be Eligible in Scotland?
The full eligibility criteria is yet to be released by the Scottish Government, although it is expected that the scheme will be open by the end of June. Once released, applicants should carefully review the requirements before applying.
The scheme appears to be aimed at:
- Eligible first-time buyers with a stable income but limited savings;
- People who currently rent and wish to move into home ownership;
- Young professionals looking to afford to buy their first home;
- Self-employed applicants who may find it difficult to save a large deposit;
- Individuals seeking to purchase new build properties or existing properties on the open market.
What is Shared Equity?
Shared equity means that you hold title to your entire home, however as part of the purchase is funded by the Scottish government, they will hold a financial stake in the property.
The contribution from the Scottish government will make up a percentage of the purchase price, with the balance being made up by mortgage funds and the applicant’s own funds. In the future, when the property is later sold, transferred or re-mortgaged, this will trigger repayment to the Scottish Government of the percentage of their contribution, relative to market value.
Costs Associated with Buying a House
In Scotland, purchasers must also consider Land and Buildings Transaction Tax, otherwise referred to as LBTT. This is Scotland’s version of stamp duty. First-time buyers benefit from LBTT relief where, if eligible, LBTT is not payable on the first £175,000 of the property value. However, there are a number of costs which should be considered when purchasing a property, to include:
- LBTT, where applicable
- Conveyancing fees
- Registration dues
- Mortgage arrangements fees
- Building insurance
A £10,000 contribution may be valuable, however purchasers should ensure that they can meet all remaining costs of the transaction.
What This Means for First-Time Buyers in Scotland
The Scottish Government’s new scheme has the potential to provide meaningful assistance to those looking to purchase their first home. With up to £10,000 available, home ownership is more achievable for those struggling to get on the property ladder. However, it is important that prospective applicants take time to review the full eligibility criteria and consider whether the scheme is suitable for them before applying.
How Our Solicitors Can Help First-Time Buyers
Purchasing your first home can feel overwhelming, particularly when navigating a mortgage, reviewing a Home Report, understanding LBTT and considering whether a shared-equity arrangement is suitable for your circumstances.
Our experienced property solicitors regularly assist first-time buyers in Scotland with every stage of the conveyancing process. We can advise on purchasing a property in Scotland, explain the legal implications of shared equity arrangements, review title documentation, liaise with mortgage lenders and help ensure your transaction progresses as smoothly as possible.
Whether you are purchasing a new build or an existing property, our team can provide practical guidance to help you move from renting to home ownership with confidence.
By Abby Duncan, Trainee Solicitor
