Buying your first property is a momentous life milestone. There is a lot of hope, possibility, and prospect riding on it. Reaching this milestone isn’t always easy for the average buyer. The First Home Fund Scheme is a Scottish government programme to assist first-time home buyers.
It is a shared equity pilot scheme that offers £25,000 to buy your preferred property. Every first-time buyer in Scotland is eligible for this, and it helps fund both new build and existing residential property purchases. The government shares property ownership with you by buying a portion of the property, so you only need to fund the remainder with a deposit and mortgage. Although the government owns an equity share in the property, you will own the property outright. You can be one of the 12,000 or more first-time buyers the programme covers.
Why is the scheme so important?
The struggle to save for a sizable deposit for a home, rare low deposit mortgages, and strict lending criteria, make it difficult to become a first-time property owner. The First Home Fund offers a government contribution of 49% on the property valuation or purchase price, whichever is lower. There are no property price restrictions; you can choose to buy the house you want. The remaining stake consists of a minimum deposit of 5% and an agreed mortgage in principal of at least 25% from a bank or building society. If you do not need the full £25,000, you can borrow less, and it also means the government owns a lesser share.
There are no monthly repayments, and the Scottish government does not charge interest. Instead, you can gradually increase the equity share or repay the amount the government spent when you sell the property. You can buy out the government share on a minimum of 5% at a time. However, the government cannot own less than 10% of the shared equity, so you need to buy the final 10% in full on your next purchase.
How do I become eligible for the First Home Fund?
- The scheme is exclusive to first-time buyers in Scotland.
- You are only eligible if you have not previously owned a property in the UK or abroad at any time as either a sole or a joint owner. For a valid joint application to the First Home Fund, only one of you needs to be a first-time buyer. The property purchased through this scheme must be your sole residence, and it cannot be a buy-to-let property. However, the party who owns a property has to sell it before the new purchase is complete. It includes selling any buy-to-let investment properties, as well.
- You cannot apply for other Scottish government shared equity schemes.
- You can, however, use a Help to Buy: ISA or Lifetime ISA to fund your deposit. Your mortgage must be on a capital and interest basis.
How to apply for the First Home Fund
When your offer on a property becomes successful, duly fill out the application form on Link Housing with your details and the property’s details. The application needs to go through before your solicitor finalises the missives for the purchase. Your application carries an administration fee of £550, which is refunded if the application is unsuccessful.
The Administering Agent for the scheme will then complete a sustainability assessment to appraise whether you can meet your monthly mortgage payments. When your application is approved, an Award Letter from the Administering Agent is sent to you, your independent mortgage adviser, and your solicitor.
The Award Letter is only valid for 3 months. During this period, you need to complete missives, or your application will expire. A cancelled application requires you to reapply. It is also the time to start the mortgage process with your lender. The purchase has to be completed within 6 months of the date missives get finalised.
The Scottish government always recommends that you seek independent mortgage advice before applying for the First Home Fund.
Am I required to save a deposit?
Yes, you need to provide a minimum deposit of 5% of the value of the property. It is subject to individual lender requirements, and any amount above valuation has to be cash funded.
When can I apply for the First Home Fund?
First Home Fund will be taking applications due for the 2021-22 financial year on 1 April 2021 at 9 am. Any applications received after the fund is exhausted will not be processed.
The First Home Fund offers greater flexibility to first-time buyers by removing burdensome financial worries the average buyer usually faces. Would you sign up for the scheme? Explore prime Scottish property portfolios at GS Brown Construction and experience a full-service home building, renovation, remodelling, and improvement.