Help to buy scheme to assist home buyers

Amanda Wiewiorka.
Amanda Wiewiorka.

Back in September, the Scottish Government introduced its Scottish Equity Loan, or help to buy scheme which accurately describes what the scheme does.

Put very simply, it is there to help buyers who cannot raise large deposits of more than five per cent to buy a property by providing a 20 per cent equity loan towards the purchase of a new-build property up to the value of £400,000.

Not only will it help home buyers but, it is hoped, the building industry too.

An example given to illustrate the figures is that if you wanted to buy a house for £150,000, you would need to find a deposit of £7,500 - or five per cent - and a mortgage to cover the remaining £112,500 and the Scottish Government would help out with an equity loan of £30,000.

You would own your home but since the government has an equity stake in it, you need to repay that when you sell from the proceeds of the sale, or at any other time you can afford to do so.

So if, after a few years, you sold your house for £180,000, you would actually receive £144,000, or 80 per cent of the price, with the government recovering £36,000 or 20 per cent.

However, if house prices drop and you can sell for just £140,000, you would still get 80 per cent of that or £112,000 while the government would get £28,000.

There are a few rules and regulations: buy-to-let investors are excluded; as are part-exchanges; the scheme can’t be used to buy a second home and your monthly costs need to be no more than 45 per cent of your net disposable income.

The scheme is available to both first time and existing home owners although if you already own your home, you will need to sell your current property before being eligible for the Scottish Equity Loan, and your new property must be a new build. Most new build properties are covered by the scheme, but do check that the builder is affiliated to the scheme.

A similar scheme has been operating successfully in England since April and has generated more than 12,500 sales.

In a nutshell, the relevant points of the scheme are:

It is available for affiliated new builds up to the value of £400,000;

Available to both first-time buyers and existing home owners;

Buyers must find a minimum deposit of five per cent of the purchase price;

The buyer must live in the property and it must be their only property;

Most new-builds are eligible but check with the property developer;

The mortgage must be a repayment mortgage;

You can repay the government’s equity stake at any time.