Scotland's First Home Fund
07 April 2021
Scotland’s First Home Fund provides a loan of up to £25,000 to first time buyers to help boost their deposit when purchasing a property. The First Home Fund scheme initially opened for applications on the 18th of December 2019. Due to a large number of applications over the summer of 2020, the First Home Fund closed to new applications on 2nd October 2020.
However, the Scottish Government relaunched the scheme for applications on the 1st of April 2021 for home purchases due to be completed in the 2021/2022 financial year.
Any applications that are currently delayed into the financial year of 2021/2022 due to the Covid-19 Pandemic will be funded, provided an extension was requested by the 12th of March and the financial position of the applicant remains unchanged.
If you are interested in applying for the First Home Fund, the Scottish Government is encouraging you to seek independent mortgage advice to make sure the scheme is appropriate for you and your circumstances.
Here are some commonly asked questions regarding the First Home Fund..
Is the First Home Fund still open for applications?
The Scottish Government reopened the scheme on the 1st of April 2021 for home purchases due to be completed in the 2021/2022 financial year.
If you wish to apply for The First Home Fund, it is worth seeking independent mortgage advice now to gain more knowledge about the scheme, how it works and, for preparation for purchasing your first home.
How much money are first time buyers entitled receive to from the scheme?
The First Home Fund will lend those eligible buyers up to £25,000 (this will be capped at 49% of the property valuation of purchase price, whichever is lower) to help boost their deposit and help them on to the property ladder.
Who is eligible for the First Home Fund and are there certain requirements I need to meet?
The scheme is open to all first time buyers in Scotland who are taking out a mortgage. If you have previously owned a property in the UK or abroad as any time, or are a cash buyer, you cannot apply as either a sole or joint owner.
There is a limit of one application per property – you can submit a joint application, but you will be limited to one award of £25,000. Your mortgage must be capital repayment and be at least 25% of the properties purchase price.
The property must also be your sole residence – the scheme is not eligible for buy-t0-let properties.
Along with this, you cannot apply for any other Scottish Government shared equity schemes, while applying for the First Home Fund. If you choose to apply for this scheme, you must withdraw any other applications.
Can I use money from Help to Buy ISA or Lifetime ISA alongside the First Home Fund?
If you have been using a Help to Buy or Lifetime ISA to save for your first property, as these both offer a 25% Government boost on savings, you can use this money for your deposit alongside the First Home Fund scheme.
I’m a first time buyer but my partner is not – will we be eligible for the scheme?
Only one of the joint purchasers of the property must be a first time buyer in order to apply for the scheme. However, the other purchaser will need to ensure any properties they own have been sold before the completion or date of entry of the new property being purchased.
How do I apply for the First Home Fund?
After receiving an offer accepted on a property, you can fill out the application form on Link Housing, they will ask for your personal details and information regarding the property you are purchasing. You must do this before your Solicitor concludes the missives of your purchase.
Your completed form will be sent to the Administering Agent for the scheme, they will complete a sustainability assessment to assess whether you can meet your monthly mortgage payments. If your application is accepted you, your Independent mortgage adviser (if you have one) and your solicitor will receive an Award Letter from the Administering Agent.
Your Award Letter is valid for three months, during this time you are expected to conclude missives. If you do not conclude missives in this time, your application will be cancelled and you will need to re-apply.
Once you receive your Award Letter, you should contact your independent mortgage adviser and lender to start the process of your full mortgage. The settlement of the purchase must be completed within 6 months of the date you conclude your missives.
A fee of £550 will be charged and collected by the Administering Agent once they receive your application. This fee will be refunded if your application fails at any time, except in cases where misrepresentation or fraud has been detected on your part.
The Scottish Government has recommended that you obtain independent mortgage advice before applying to this scheme to ensure it is correct for you and your circumstances.
Is it a cash or equity loan scheme?
The First Home Fund is an equity loan scheme.
Purchasing a property through a shared equity scheme means you will split the cost of purchasing the property with the Scottish Government. You will fund your share through a deposit and mortgage and the Scottish Government will fund the rest.
Whatever amount the Scottish Government fund (up to £25,000, which is capped at 49% of the valuation of purchase, whichever is lower), will be invested as a percentage share of the property valuation.
However, you will own the property outright and hold the full title.
When does the loan need to be repaid?
The loan must be repaid when you sell the property. How much you need to repay depends on how much you borrow from the scheme and what percentage of the property’s value this makes up.
For example, if you use £25,000 for a property valued at £100,000, you will need to repay 25% of the property’s selling price to the Government when you choose to sell the home.
This means no monthly payments are required, unlike a mortgage.
You can also choose to pay the loan back before by increasing your equity scheme. You will need to speak to the Administering Agent before doing this and there are costs involved in increasing equity which you will be responsible for.
Here are some conditions on how you can increase your share, which are covered below:
- Your equity share must be increased by at least 5%
- If your equity share is or higher than 90%, any further increase must be to 100%
- You may increase your equity share up to 100%
In order to increase your equity share, a property valuation must be undertaken. This will give you the open market value of the property which will be used to calculate equity shares. You will have three months from the date of valuation to increase your equity share and make payment.
If you are planning to sell your property and repay the loan at that stage, you will need to notify your Administering Agent. You also cannot sell your property below 95% of the valuation figure without the agreement of the Scottish Ministers.
Has this scheme replaced the Help to Buy scheme?
When the First Home Fund was initially launched, the Scottish Government clarified it would run alongside the Help to Buy scheme. However, in January 2021, the Scottish Government announced that they will not be accepting any applications to Help to Buy (Scotland): Affordable New Build scheme after the 5th February 2021. However, they will continue to accept applications to Help to Buy (Scotland) Smaller Developer scheme.
Can I use the loan money to bid over the valuation of the property?
The Scottish Government has confirmed that the loan amount is not intended to be able to be able to be used to bid over the Home Report valuation of the property.
This means that you will need to save a 5% deposit, and the money required to bid over the Home Report valuation of the property.
So, will this scheme actually help first time buyers in Scotland get on the property ladder?
Before the Covid-19 Pandemic, most lenders only required a minimum 5% deposit for a mortgage. However, during the pandemic, many lenders have raised their minimum deposit amount.
The UK Government’s mortgage guarantee scheme is set to bring 95% mortgages back to the market. However, the First Home Fund is an extra option for those struggling to save larger deposits, as you only need to have a 5% deposit and the money from the Scottish Government can boost your deposit to make you eligible for more mortgages.
Another main advantage of this scheme is that it will be applicable to both resale and new build properties, resulting in a greater choice of homes and areas. The Help to Buy scheme was only available with new build developments, resulting in a restriction of areas where these developments could have been built.
When are applications to the First Home Fund open until?
The Scottish Government reopened the scheme on 1st April 2021 for home purchases to be completed in the 2021/2022 financial year.
The Scottish Government has allocated £60 million to the First Home Fund for the 2021/2022 financial year, which is a reduction on the previous year. Due to the reduced budget, the First Home Fund will close once the budget has been exhausted and the Scottish Government has clarified they are not able to provide notice of this.
If you are thinking about applying for the First Home Fund, it is worth speaking to an independent mortgage adviser now as they can advise you on exactly how the scheme works and how to prepare for purchasing your first home.
Find out more about the First Home Fund in the Scottish Government guidance leaflet.