Apply for the First Home Fund as a first-time buyer in Scotland

As a first-time buyer in Scotland, you can benefit from a £25,000 equity loan from the Scottish Government when you apply for the First Home Fund. This is an excellent way to get a much-needed helping hand towards buying your first home. As well as that, you only need a 5% deposit and you can apply from 1^st April. Here, we’ll explain what the scheme entails and how the application process works.

What is the First Home Fund?

This scheme was introduced by the Scottish Government in 2019 and is exclusively for first-time buyers. It offers up to £25,000 towards your purchase price, with a maximum equity stake of 49% based on the property valuation. Even though the government has an equity share of your property, you own it outright.

You make up the remaining equity stake with a 5% deposit and a mortgage. This has to be a repayment mortgage and it needs to be a minimum of 25% of the property price. Under this scheme, you can buy a new-build or a resale property as your first home, unlike other government schemes where you are restricted to newly built properties.

Who can apply for help with this scheme?

The First Home Fund is only available to first-time buyers in Scotland. That means you cannot own or have previously owned a property either in Scotland or abroad. You can either apply on your own or make a joint application but only one loan of £25,000 will be granted per application. The property you buy must be used as your main residence — you cannot use this scheme for a buy-to-let property.

When you apply for help via the First Home Fund, you cannot apply for any other shared equity schemes provided by the Scottish Government. If you have applied to another scheme, you need to withdraw your application before applying to the First Home Fund. You can, however, still benefit from a Lifetime ISA or a Help to Buy: ISA. These schemes help you save towards your deposit with the government providing a 25% bonus to your savings.

How to apply

The First Home Fund was first opened for applications in December 2019. There was such a high demand for the scheme in 2020 that it had to be temporarily closed in October. It reopens for applications, however, on 1^st April for home purchases that complete between April 2021 and March 2022.

When you’ve had an offer accepted on a property that you’d love to be your first home, complete the application form that will be available via Link Housing from 1^st April. This must be done before the missives are concluded by your solicitor. If not, you will be unable to receive help via the First Home Fund.

Your application will be reviewed by the scheme’s Administering Agent and, when approved, you will receive an Award Letter. This is valid for 3 months and you need to conclude the missives and start the mortgage process during this time. You must complete the purchase within 6 months of the date the missives are concluded.

Costs to consider

There are various costs involved that you need to budget for before proceeding with your application.

Paying more than the valuation amount

The government’s equity stake and your 5% deposit are based on the property valuation. Should you choose to pay a higher purchase price, you need to contribute this extra amount yourself.

For example, you agree to buy a property in Trinity for £185,000 but the property valuation is £180,000. The Scottish Government agrees to loan you £25,000 and you pay £155,000 to meet the valuation price using a combination of your 5% deposit and mortgage. Your deposit equals £9,000 (5% of £180,000) and you need to pay the extra £5,000 above the valuation price, totalling £14,000.

Be aware that if you agree to a price that is higher than the market value, you risk going into negative equity if the property value decreases in the future.

An application fee for the fund

A £550 fee is payable to the Administering Agent once you have made your application. If your application doesn’t proceed for some reason, you will receive a full refund.

Legal costs and your lender’s fees

You need to arrange a property valuation to be carried out by a surveyor registered with the Royal Institution of Chartered Surveyors (RICS). You also need to budget for any fees payable to your lender, such as a mortgage arrangement fee, and your solicitor’s costs for handling your purchase. Other costs to factor into your budget include building and contents insurance as well as removals costs.

Land and Buildings Transaction Tax (LBTT)

As a first-time buyer, you don’t have to pay any LBTT on a purchase price up to £175,000. Even if your property is more expensive than this, the first £175,000 is exempt from the tax. Should the property price be higher than £175,000, check your LBTT liability with your solicitor.

When is the equity loan repaid?

You don’t make any interest payments on the equity contribution received from the Scottish Government. Instead, you can either repay the government’s equity loan when you sell your property or when you increase your equity stake in it.

Increase your share of the equity

If you want to increase your equity share, you need to instruct a surveyor to carry out a valuation. This will be used to calculate the shares based on the market value. Your equity share must be increased by at least 5% and this must be done within 3 months of the valuation. If you already have a 90% stake in the property, your increased amount must be to 100%.

Sell the property

Another option is to repay the loan when you sell your property. The amount each party receives depends on their equity share, regardless of whether the value of the property has increased or decreased since you bought it.

For example, you may have bought a property in Edinburgh for £125,000. The Scottish Government had a 20% equity share at £25,000 and you had an 80% share at £100,000. You sell your property for an increased value of £150,000, meaning you receive £120,000 and the government receives £30,000. However, if the property value has decreased and you only manage to sell it for £100,000, you receive £80,000 and the government receives £20,000.

Get expert financial advice

Before you apply for the First Home Fund, seek expert guidance from your mortgage broker. Other schemes are available, such as the Low-cost Initiative for First-Time Buyers (LIFT), and these may be more suited to your circumstances than the First Home Fund. Your mortgage adviser can also oversee your application from start to finish to ensure that your first home-buying process is a smooth one.