Help To Buy Guidance
Help to Buy Overview
What is Help to Buy
The Help to Buy (Scotland) scheme was introduced in 2013 in order to help first time buyers and existing home owners to climb the property ladder with help from the Scottish Government. Due to the initial success of the Help to Buy Scheme, earlier this year the Scottish Government announced their 3 year continued plan for the scheme which will operate until 31st March 2019.
The Scottish Government introduced two Help to Buy funding schemes;
The Help to Buy (Scotland) Affordable New Build Scheme is available to larger homebuilders, such as Persimmon, Miller Homes etc; and
The Help to Buy (Scotland) Smaller Developers New Build Scheme is available to smaller home builders
The schemes provide homebuyers with a maximum contribution of 15% towards the purchase price of a new build home.
Can I buy any new build property?
The scheme is only available if the new build home is purchased with a “participating home builder” a list of which can be found here.
Additionally, there are restrictions on the purchase price of the property, Help to Buy funding is only available if the purchase price is on or below the threshold amounts noted below; essentially you cannot purchase that mansion you had your eye on!
As mentioned above, the scheme is scheduled to operate until 31st March 2019 and the relevant purchase price thresholds for the next three years are noted below;
For financial year 2016/17- This applies to purchases which settle on or before 31st March 2017, the threshold price is £230,000;
For financial year 2017/18- This applies to purchases which settle on or before 31st March 2018, the threshold price is £200,000;
For financial year 2018/19- This applies to purchases which settle on or before 31st March 2019, the threshold price is £175,000;
How do I pay for the rest of the purchase price?
The Help to Buy Scheme is made up of 3 parts;-
Scottish Government funding
Another benefit of the Help to Buy Scheme is that you are only required to provide a 5% deposit of the purchase price of the new build property, as opposed to the generally higher deposit required to purchase a property.
The majority of the funding for the property will come from a mortgage however; in order to qualify for the scheme, you must make sure that your mortgage lender is one of the participating lenders noted here and that the mortgage you obtain is a repayment mortgage,
As mentioned previously, the maximum contribution the Scottish Government will provide is 15% and your contribution can be calculated as follows;-
|Worked Example 1: where deposit and mortgage funding =85%||£||%|
|Purchase price of new home||200,000||100|
|Mortgage obtained by buyer of 80%||160,000||80|
|Buyer pays 5% deposit||10,000||5|
|Total Contribution from buyer||170,000||85|
|Scottish Government Assistance of a 15% equity stake||30,000||15|
|Worked Example 2: where deposit and mortgage funding is less than 85%||£||%|
|Purchase price of new home||160,000||100|
|Mortgage obtained by buyer of 70%||112,000||70|
|Buyer pays 5% deposit||8,000||5|
|Total Contribution from buyer||120,000||75|
|Scottish Government Assistance||0||0|
In example 2, because the contribution does not account for 85% of the funding, Help to Buy will not apply as the maximum contribution provided by the Scottish Government is 15% and in this example the Scottish Government’s contribution would be 25%.
Will I own the property jointly with the Scottish Government?
The property will be owned by the purchaser and the title to the property will be in the name of the purchaser. The Scottish Government will not own a “share” of your property, in formal terms the interest of the Scottish Government is constituted by a security over the property like a mortgage. But this protects their 15% “equity interest” in the property.
When do I need to repay the Scottish Government’s contribution?
The Scottish Government’s contribution can be repaid at any time and is based on the value of the property at the time of the repayment. Commonly, the Scottish Government’s contribution is repaid when the property is sold. Information on repaying the contribution on the sale of the property can be found by clicking here.
As the repayment of the Scottish Government’s contribution is paid from sale price of the property (as opposed to their original contribution being repaid), an important point to consider is what happens if the property sells for less than you purchased it for?
In this example, the value of your stake has increased from £9,000 to £43,000. It is important to note that whilst you will receive £43,000 from the sale price you will have Estate Agency and sale costs to deduct from this amount.
Worked Example: An example of when the value of your property increases£Initial property value180,000Your stake9,000Your Lender144,000Scottish Government's stake - 15 per cent27,000Sale price220,000Your Lender is repaid144,000Scottish Government receives 15 per cent33,000you receive the rest43,000
Worked Example: An example of when the value of your property decreased£Initial property value180,000Your stake5,000Your Lender148,000Scottish Government's stake - 15 per cent27,000Sale price160,000Your Lender is repaid144,000Scottish Government receives 15 per cent24,000you have to pay8,000
In conjunction with the Help to Buy scheme, many banks and building societies are offering low rate or fixed mortgages however, what do you do when your low or fixed rate comes to an end? The majority of people re-mortgage to avoid paying the standard base rate set by their bank or building society. If you would like to re-mortgage the property then consent is required by the Scottish Government and further information can be found by clicking this link
For further information regarding Help to Buy including how to apply, please visit Here.