First-time buyers may soon think it is much easier to buy their first home, thanks to a new government scheme to supply loans of up to lb25,000 towards a first deposit.
But, before you begin eagerly searching for the first home, you should know the scheme is only for properties being bought in Scotland.
Here, we glance at what the new pilot scheme provides first-time buyers in Scotland, and be it any better compared to existing Assistance to Buy Scotland scheme.
What is Scotland’s new first-time buyer scheme?
The new scheme, which was not named yet, will help first-time buyers get on the property ladder in Scotland.
First-time buyers will get a government loan of up to lb25,000 to visit towards their first property, once they can offer a 5% deposit themselves.
The loan will be secured around the equity of the home, and could be paid off anytime. At the latest, it should be repaid when the rentals are sold.
The Scottish government has earmarked lb150m for the scheme, which means 6,000 people receiving lb25,000 loans. However, at this time it's not clear how many people will qualify for the top amount, or whether more buyers might be helped with smaller loans.
The scheme is due to begin later this season, though no official launch date continues to be announced. It’s because of run until the end of Parliament in May 2022, that could mean it will likely be around for just 18 months.
More details to become confirmed
There are several information regarding the brand new scheme that are still unclear.
When Which? contacted the Scottish government, a spokesperson reaffirmed funding for that scheme, but declined to answer any specific questions on eligibility, or details of the way the scheme will actually work.
This implies that there is still an issue mark over how the scheme will work, including:
How will the new scheme compare to Assistance to Buy Scotland?
If the brand new scheme sounds familiar, which may be since it shares many similarities with the government’s existing equity-loan scheme, Assistance to Buy (Scotland).
The table below shows how the two schemes compare on some of their shared features.
|Feature||New first-time buyer scheme||Help to purchase (Scotland)|
|Loan type||Cash loan||Equity loan|
|Paying back the loan||Must be repaid when property is sold, but could get paid in full at any time before that||Repaid when you sell, or increase your equity in 5% steps beforehand|
|Who is eligible?||First-time buyers||Those purchasing a new-build property like a main residence|
|Maximum property value||No limits confirmed||lb200,000|
|Minimum deposit required||5%||5%|
|Closing date||May 2022||March 2022|
Help to purchase Scotland was first launched in 2022, and it is because of near the coast March 2022. So, you will see a two-month period when the new pilot scheme is the only choice for first-time buyers seeking a government loan.
While it differs from the assistance to Buy schemes in England, Wales and London, Help to Buy Scotland has similar restrictions.
It is just offered to those buying new-build properties as their main residence, there are maximum property values in place, and also the amount you’ll have to pay back may be dissimilar to just how much you borrowed, as it depends whether the property increases or decreases in value.
The new pilot scheme could offer more flexibility.
For one thing, it’s not restricted to new-build properties, and it’s been reported that there’ll be no age restrictions on first-time buyers wanting to apply, with no maximum around the cost of the property you place the borrowed funds towards, though this is not yet been confirmed.
The proven fact that you’re taking out a loan, rather than an equity loan, could also be a benefit. You’ll only need to repay what you’ve borrowed (plus interest), and you won’t be penalised having a bigger bill in case your property increases in value.
However, when you can repay the borrowed funds at any time, wording shows that you can only do this in full.
For first-time clients who struggled to get a deposit together in the first place, it might be challenging in order to save a further lb25,000. Help to Buy Scotland, however, accepts 5% equity payments, which can be a bit more manageable.
Why is the scheme being launched?
In her closing speech at the SNP Conference a couple of days ago, First Minister Nicola Sturgeon pitched the scheme in an effort to go ahead and take pressure off the 'bank of mum and dad', and those can not save for any deposit.
'Even on decent incomes, saving for a deposit takes such a long time it is a distant dream,' she said. 'In a good and equitable country that cannot stand. And so we will act. We'll help young adults with the deposits they require.
'If buyers can find just 5% of the value of their new house using their own funds, we will do the rest.'
Buying the first home in Scotland
According towards the latest Land Registry data, first-time buyers in Scotland are looking at an average price of lb118,210 – an amount measuring only marginally greater than this past year.
First-time buyers also benefit from the fact that very few will have to pay any Land and Buildings Transaction Tax (LBTT), the Scottish equal to stamp duty.
That's because first-time buyers don't have to pay any LBTT on residential properties as much as lb175,000, well above the average price first-time buyers have a tendency to pay in Scotland.