Today marks a red letter day for First Time Buyers as applications for the Scottish Government backed First Home Fund open up for the year ahead.
A Roaring Success To Date
The scheme, originally piloted in 2019, before being rolled out across the country in 2020 helped 8,000 first time buyers take their first steps onto the property ladder last year. Ahead of her annual budget, Scottish Finance Secretary Kate Forbes extolled the success of the scheme and announced that it would be continued in 2021 with a further investment of £60m from Scottish Government.
So, what exactly is the First Home Fund? In short, it is a shared equity scheme where the Scottish Government will contribute up to £25,000 in the form of an interest-free loan toward the deposit for a first-time buyer to purchase their home. Upon selling your home, the Scottish government will then take back their £25,000 stake. You will still need a minimum deposit contribution of at least 5% of the purchase price of the property.
It has proven incredibly popular since its inception and opened the door for first-time buyers to compete in the highly competitive property market that we find ourselves in. It is set up on a first-come first-served basis and it is expected that there will be a clamour of interest from would-be-buyers once the scheme launches tomorrow.
How It Works
The First Home fund can be used on both new build and second hand residential properties and all good independent financial advisors, mortgage brokers and lenders will be able to assist you with the application process. For couples that are looking to make a joint purchase of a property, then only one of those named in the purchase needs to be a first time buyer. The loan contribution is only available with a mortgage however, and cash purchases or buy-to-let mortgages don’t meet the criteria for applications.
In terms of the difference it can make to a buyer, we took a look at a £225,000 1 bedroom, penthouse at the highly sought-after City Garden Apartments development in the heart of Glasgow’s City Centre. Repayments based on an 85% LTV mortgage at a 3.39% interest rate over 35 years with a 15% deposit of £33,750 would cost the purchaser £778 per month. For the same property, with the support of the First Home Fund, a 5% deposit of just £11,250 topped up with the £25,000 government contribution bringing monthly payments on the same terms down to £767 per month or shortening your loan term by circa 6 years.
Positive Mortgage Outlook
It will also be interesting to see what happens with lenders and LTV rates under the drive of the Chancellor, Rishi Sunak, and his mission to change ‘generation rent’ into ‘generation buy’. The UK Government are offering incentives to lenders to bring more 95% mortgages to the market, albeit with certain restrictions. If lenders are more readily willing to offer 95%, and even 90% mortgages, then it could have a massive impact on the affordability for many first time buyers in Scotland, particularly when the First Home Fund is used in conjunction. At present, most mainstream banks & building societies are only offering 85% LTV rates on new builds, but that will likely change in the coming months.
For the most up to date and accurate information on the First Home Fund initiative and how your own position may be affected, we would recommend speaking to an experienced mortgage broker, IFA or lender directly. A member of the Corum team will happily point you in the right direction of a trusted professional should you need any assistance.