A GUIDE TO THE SCOTTISH GOVERNMENT'S FIRST HOME FUND BY DANIEL MCLARDY
In December 2019 the Scottish government launched their most flexible shared equity scheme yet for first time buyers – the First Home Fund. First time buyers can now benefit from a maximum £25,000 interest-free equity loan on a pre-existing or new build property without the requirement to demonstrate the need for support.
CAN I REALLY BUY ANY PROPERTY?
The scheme does not restrict you to buying a new build property as with the help to buy scheme, and there isn’t a price cap either. So yes, the flexibility of the First Home Fund allows you to buy any property in Scotland that you can get a mortgage on.
WHO IS THE SCHEME FOR AND HOW LONG WILL IT RUN?
The scheme is for First Time Buyers only. A first time buyer is someone who has not owned (or part-owned) a property before, anywhere in the World. The scheme will run until March 2021, but if the budget of £150m is spent before this date the scheme will end early.
WHAT ABOUT JOINT APPLICATIONS?
These are allowed, and only one of the applicants needs to be a first time buyer to qualify. However, if one applicant already owns a property, this must be sold to qualify for the first home fund. Note that joint applicants can get a maximum equity loan of £25,000 between them, not £25,000 each.
WHAT EQUITY LOAN CAN I GET?
A maximum of £25,000 can be obtained. You don’t have to take the full £25,000, but equally you are not required to prove that you need the full £25,000 if you decide to use maximum amount. We consider this a very generous criteria aspect to the scheme.
DO I PAY INTEREST, AND WHEN DO I PAY THE EQUITY LOAN BACK?
No interest is charged. The government’s equity share is paid back when you sell the property, but you can decide to buy the governments share beforehand in tranches or chunks of 5% minimum. If you possess 90% or more of the equity you are required to increase your share to 100%, fully buying out the Scottish government.
DO I PAY ANYTHING TO PARTICIPATE IN THIS SCHEME?
Yes, there is an administration fee of £550. This is refunded if your application fails at any point.
IS THE SCHEME AFFORDABILITY CHECKED?
Yes. This is referred to as a “sustainability check”. The monthly mortgage payment and other debt repayments cannot exceed 45% of your net disposable income. This is not as scary as it sounds, and in most cases we find that applicants meet this stipulation. Where this presents an issue, we can usually address it through in adjustment of the mortgage product and features.
WHAT DO I CONTRIBUTE TOWARDS THE PURCHASE?
Participating lenders require you to contribute a 5% deposit of the lower of the home report value or purchase price. Please note that if you buy a property above the home report value, your 5% deposit would be based on the home report value, not the purchase price.
DOES THE SCHEME ALLOW ME TO BUY A PROPERTY ABOVE THE HOME REPORT VALUE?
Yes. BUT, and this is a very big BUT, the government’s equity share will be based on the home report value, not the purchase price. Let’s say you buy a property for £230,000 that has a home report value of £200,000 and you take the full £25,000 equity share. The Scottish government’s equity share will be £25,000 / £200,000 x 100 = 12.5%, which is larger than if the share were calculated on the purchase price. If the Scottish Government’s equity share is paid back on the sale of your property, they will receive 12.5% of the selling price.
CAN I BUY A PROPERTY BELOW THE HOME REPORT VALUE?
Yes, but the Scottish Government’s equity share will be based on the purchase price, not the home report value.
WHAT IS THE APPLICATION PROCESS?
Once you have an offer for a property verbally accepted you make your application through the Scottish governments administering agent, which is currently Link Housing. If your application is accepted an award letter will be issued to you and your solicitor with which to complete the transaction.
HOW CAN EXPERTS 4 MORTGAGES HELP ME?
We assess your circumstances before you apply to ensure you qualify for the First Home Fund Scheme, and produce for you the chosen lender’s DIP (Decision in Principle) certificate required at application stage. When you are approved for the scheme, we will then proceed to arrange the mortgage and liaise with the relevant parties to see the purchase through to the end. We believe a good mortgage broker will increase your chances of success, and reduce the potential for disappointment.
QUESTIONS FROM THE PUBLIC WHO HAVE CONTACTED US AFTER READING THIS ARTICLE
I am not a british citizen but have a tier 2 visa - can i apply for the first home fund?
Yes you can apply for the First Home Fund on the proviso that you can get a mortgage. We may be able to help you with this.
I am a self-employed sole trader, so I don't have a "normal" income. Does this mean I am not eligible for the First Home Fund?
Not at all, being self-employed doesn't exclude you from the scheme. Bear in mind, however, that the evidence requirements are different. You will need to have your latest tax calculation (also known as SA302 form) to submit as proof of income.
How does the First Home Fund assess self-employed income for a sole trader?
It's the pre-tax net profit for your most recent tax calculation. This is the sum of your revenue minus expenses before taxation. On your tax calculation (SA302) this is referred to as "profit from self-employment".
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