This article was first published in our November 2018 newsletter.
First-time buyers have particular challenges that are, perhaps, not experienced by those who have already made the transition to home ownership. Two of the key areas of particular concern to first-time buyers are the need to raise a deposit and the costs of buying a house.
Let’s take the first of these two points, the need to raise a deposit.
Up until the meltdown of financial institutions in 2008, it was possible, indeed common, that first-time buyers could borrow 100% of the purchase price from their lenders (and, on occasions, more than that). This level of borrowing had considerable risks attached, particularly when there was a decline in the property market where the value of the house became less than the mortgage over it.
The financial crisis caused Lenders and the Regulators to review their actions and requirements relating to borrowing levels. Deposits levels were increased dramatically and “affordability” tests are now applied. Whilst deposit levels have eased and the return in the availability of 95% mortgages, raising even a 5% deposit can be very challenging, particularly for those already in the rental sector.
The UK and Scottish Government stepped in to help ease this problem which, amongst other things, stimulated the construction section whilst also providing assistance to those seeking to get onto the property ladder.
In 2007, the Scottish Government introduced the Low-Cost Initiative for First-Time Buyers (LIFT) which is a shared equity scheme. The Scottish Government provides up to 40% of the deposit – and this money only needs to be repaid on the eventual sale of the property.
There are two versions of the scheme – the Open Market Shared Equity Scheme and the New Supply Shared Equity Scheme. As the names imply, the former is available for purchase of homes on the open market whilst the latter is in respect of newly built properties.
Help To Buy (Scotland)
There is also the Help to Buy (Scotland) scheme which focused on new-build properties. You can find out all the information you need about Help to Buy: Affordable new build scheme.
In addition to the help being offered in relation to the deposit, the Scottish Government also introduced changes to Land & Buildings Transaction Tax (LBTT) that, from 30th June 2018 first-time buyers do not face having to pay LBTT on any home where the purchase price is £175,000 or less (the current threshold for home movers is £145,000 below which LBTT is not paid). The maximum relief available to first-time buyers if £600. The Scottish Government estimates that this will take 80% of first-time buyers out of LBTT completely and that it will help 12,000 purchasers each year.
Land & Buildings Transaction Tax
Revenue Scotland administers Land & Buildings Transaction Tax and if you want to find out how much tax you’ll pay on your purchase you can use the LBTT calculator.
If you would like to discuss any element of your house purchase or how you can go about arranging your mortgage or getting assistance through the various Help to Buy schemes, please call us on 0141 771 3911 or email us with your enquiry.