What is the First Home Fund?
Introduced by the Scottish Government in 2019, the First Home Fund is a shared equity scheme that allows first-time buyers to buy a property, either new build or existing property, with up to £25,000 provided by the Government.
Through the use of this scheme, those who are wishing to buy their first property are able to share the expense with the Government. As an interest free scheme where repayment is made upon selling your home, there are no monthly payments required to be made to the government. Therefore, it is a good aid to buy your first home. There are also options to repay earlier than this if suitable.
The application criteria
The first thing to consider is whether you are a first-time buyer. This means that you have never owned a property, in sole or joint names, in the UK or abroad. Additionally, the property that you wish to buy must be your sole residence. If you have a partner, it does not matter if they are not a first-time buyer, however the property in question must be their sole residence too and they cannot own any other property.
Secondly, it is a requirement that you have a mortgage against the property as no cash buyers are permitted. The mortgage must be a minimum of 25% of the purchase price. Furthermore, your deposit must be a minimum of 5% of the purchase price.
How do buyers apply?
Assuming you meet the above criteria, it is time to consider the application process. When buying a house, a solicitor should be appointed. Delaney Graham specialise in conveyancing and can guide you through the entire legal process and the costs involved in purchasing your first home using the First Home Fund.
The property in question will need to be professionally valued. The Scottish Government will use this valuation to determine its equity percentage. In brief, the government’s equity percentage will either be based on the property’s valuation or the purchase price (if it is lower than the valuation). The government’s maximum equity share is £25,000 or up to 49% of the lower of the valuation or purchase price.
As soon as an offer for the property you would like to purchase has been accepted, you can officially apply online for the First Home Fund. An experience mortgage broker will be able to assist you with this. Once your application has been assessed and it is successful, you will receive an Award Letter. The cost of a successful application is £550 which is collected as soon as your application is received and refunded if unsuccessful.
Once the Award Letter is received, you have three months to conclude the contract for your purchase and settlement must be achieved six months after the conclusion of the contract.
Exiting the First Home Fund
In normal circumstances, you will repay the government upon selling your house. Calculating the amount that is owed to the government is dependant on the equity share that you and the government each have. For example, if the government holds a 15% equity share, then you will repay the government 15% of the sale price – this is regardless of whether the property has decreased or increased in value.
There is also the option of increasing your equity share, effectively meaning that you can pay a proportion back to the government even before you sell your house. You may want to do this, if for example, you are intending to make home improvements that would significantly increase the value of your home. It must be noted that you have to increase your share by a minimum of 5% and should your equity share already be 90% or above, you can only increase to 100%. To increase your equity share, the property must be re-valued, this is important as the updated valuation will be used to calculate the value of both your share and the government’s. If your property has increased in value, then the value of your equity share will increase and the 5% or above that you wish to pay back will be based on the new property valuation. From the point of re-valuation, you have three months to make your increased equity payment. Please bear in mind additional administration and legal costs will apply.
The First Home Fund opens back up for applications at 9am on the 1st April 2021.
Should you like any further information on the Scheme, please contact Delaney Graham Solicitors by email to firstname.lastname@example.org or by telephone 0141 483 4450.