First Home Fund: how does it work?

A new fund to assist first time buyers get on the property ladder was launched in Scotland on 18 December 2019. 

The First Home Fund scheme is a new shared equity scheme which has been receiving considerable coverage in the press over recent weeks. 

This article covers off the most frequent questions clients are asking and explains in more detail how the scheme works. 

What is the First Home Fund scheme?

The First Home Fund is a shared equity scheme which allows first time buyers to purchase their new home with assistance from the Scottish Government. The scheme will remain open until 31 March 2021 and will provide £150 million of assistance to first time buyers, either as sole or joint applicants. 

Does the First Home Fund replace the Help to Buy Scotland scheme?

No. The Help to Buy scheme, which is currently set to run until March 2021, is for the purchase of new-build homes solely, and provides Scottish Government up to 15% equity stake in your home. The First Home Fund is available for both new build homes by a builder and existing homes. This is the biggest difference between the schemes. 

Do I still require to save a deposit?

Yes. In order to qualify for the First Home Fund scheme, you will require to put down a minimum 5% deposit of the purchase price. You must also take out a minimum mortgage amount of £25,000, which needs to be a capital and interest repayment mortgage. The scheme is not available to cash buyers, or for buy-to-let properties where the property will not be the sole residence of applicants to the scheme. 

How much money will I be entitled to from the scheme?

You will be entitled to a maximum amount from the scheme of £25,000.00. This will be capped at 49% of the property valuation or purchase price, whichever is lower. For example, a lower priced property purchased and valued at £45,000 will allow for assistance up to £22,050, being 49% of the property value. A property purchased and valued at £200,000 will allow for assistance to the maximum amount of £25,000.

I am buying a property for more than home report value. What figure is the assistance based on?

If you buy a home above home report value, which is commonplace in the Scottish property market, the assistance figure from the First Home Fund is based on the actual value of the property, not the price paid if you are paying more than market value. 

First time buyer status

If you are making a joint application for the First Home Fund scheme and one party has owned property previously, you are still entitled to apply for the scheme. Only one applicant requires to be a first time buyer, as opposed to both applicants. 

Is there a cost for applying to the scheme?

Yes. There is an application fee of £550 which requires to be paid when applying for the scheme. Should your application be unsuccessful, you will be refunded the cost paid for applying. 

I have a Help to Buy ISA or Lifetime ISA. Can I still apply for the scheme and the ISA bonus amount?

Yes you can. You can still claim the 25% bonus amount in terms of the Help to Buy or Lifetime ISA. 

Can I use the scheme in conjunction with the Help to Buy scheme?

No. The First Home Fund scheme cannot be used in conjunction with the Help to Buy Scotland, Help to Buy Scotland Small Developer, New Supply Shared Equity or Open Market Shared Equity schemes. 

Is there a limit on the price of property I can purchase using the First Home Fund scheme?

No. Unlike the Help to Buy scheme, where the price is capped at £200,000 in order to qualify for assistance, there are no restrictions on the price of property using the First Home Fund scheme. This is another major difference between the respective schemes.

Are there any timescales I need to adhere to?

Yes. Once your application to the scheme has been successful and your solicitor has received the award letter to proceed, you must thereafter ensure that missives are concluded within three months of the date of the award letter. Thereafter, you must complete the property purchase within six months of the date of concluded missives. These dates and timescales are particularly important if you are buying a new build home where the build could be delayed. 

Do I have to make monthly payments to the Scottish Government using the First Home Fund for assistance provided?

No. The First Home Fund is a shared equity scheme whereby the Scottish Government will provide assistance in return for an equity stake in your property. You will own the property 100%, but the Government will have an equity stake in the property which will be in the form of charge over your property. No sums are paid each month like you do with your mortgage payment. The shared equity stake is repaid when you sell your property in the future.

What if my property increases in value when I sell. Do I pay back the same amount of assistance I received?

No. If your property increases in value in the future, you will pay back the percentage amount provided to the Scottish Government. For instance if you sell your home for £140,000 and you own 80% with Scottish Government having a 20% stake, you will repay the amount of £28,000 to them on the sale of the property, which reflects a 20% equity stake at market value at the time of sale. 

What lenders provide mortgages to applicants using the scheme?

The following lenders provide mortgages to applicants who are using the First Home Fund scheme:

• Bank of Scotland
• Barclays Bank
• Glasgow Credit Union
• Halifax plc
• Leeds Building Society
• Nationwide Building Society
• Scottish Building Society
• Scotwest Credit Union
• TSB Bank

Can I increase my equity stake in the future to reduce the Scottish Government stake?

Yes you can. If you have savings and subsequently wish to increase your equity stake to reduce the Scottish Government stake, you can apply to do this. You must increase your stake by a minimum of 5%. There may be costs associated with increasing your equity stake, both legal and administrative, but this allows you to retain a higher portion of any increased property value in the future. 

How do I apply for the scheme?

You must have an offer accepted (even verbally) or have reserved a new build home with a builder in order to apply. 

We recommend you speak to an independent financial adviser or mortgage advisor before applying for the scheme. The application process is completed online, on the First Home Fund website. For more information, and a link for applications, see www.gov.scot/policies/homeowners/first-home-fund/