• Jonathan

Can I get a mortgage? I've only got a 5% deposit

Updated: Mar 1, 2021

It's back in April after a stellar first year. So popular they had to withdraw it as the money ran out. If you are a first-time buyer and cannot get to the magic 10% deposit then this may be the answer for you. It's not the nirvana you may think though!

The First Home Fund (FHF) was the Scottish Government's (SG) way of getting first-time buyers on the property ladder. Helping them get a mortgage with only a 5 % deposit. In 2021 the entry-level for mortgages is with a 10% deposit so if you did not have this saved up it was impossible to buy a property. The FHF allows you to get a loan from the SG of up to £25,000 to help with the first property.

Let's be clear at the outset - this is not free money and comes with a sting in the tail.

If you have a 10% deposit and can buy a property at close to the Home Report value then you need to think long and hard as to whether the FHF is right for you but more of that later.

Let's start at the beginning

It is aimed at first-time buyers. That's buyers who are going to be using the property as their principal residence so budding BTL investors - this is not for you. You can buy with someone who is not a first-time buyer but they must have sold their property by the time that you pick up the keys to your new gaff.

You can use money that you have saved up from your Help to Buy ISA or a Lifetime ISA - there is no issue with that.

You need to apply for the FHF once you have an offer accepted on your property. We will do that for you. I would be suggesting that if you are interested in FHF then you should be talking to a mortgage broker immediately as there is a lot of background work that can be done to test if you are going to be eligible. You pay £550 for the admin process (returnable if you don't get the Award Letter). Once you have the Award Letter then it's back to the solicitor to explain that you have been successful.

The fun then begins. A good number of trees have been chopped down to produce the FHF paperwork. Reems of the stuff. This needs to be read by your solicitor and the solicitors who have been appointed by the SG to oversee the process - you didn't think there would be just one set of solicitors involved, did you!

It is a clunky process with solicitors going back to a fro to get all the documentation prepared and signed off. There will be added expense and you can expect that your solicitor will charge for the additional work. Be prepared for this!

Before you buy the property, you need to be aware that the SG will be looking for their money back when you sell the property. It's not free money. The repayment is calculated based upon the percentage stake that the SG have in your property. The percentage stake is based on the lower of the valuation and purchase price. This means that if you pay way over the odd for the property then the SG's percentage is going to be higher. So if the SG give you £25,000 to buy a £100,000 property then you will have to repay 25% of the purchase back to them on sale. If they gave you £25,000 and you had to pay £10,000 over the Home Report to secure the property at £110,00 then the percentage would still be 25% and not 22.72% if it was based on the purchase price.

In summary, FHF is not for every first time buyer but if you are interested then I would look at the following three things

  • Make sure that you have saved the cost of the application and additional legal fees for the FHF. This could be as much as £1,000 which you might not have budgeted for

  • If I have a 10% deposit - then think long and hard as to whether this is for you. If you have to bid over the Home Report price then you could use some of that 10% deposit to do that and then use the FHF to secure a mortgage. That is an option that I have seen used.

  • Treat the FHF as a second mortgage and do what you can to repay this off. You can do this in 5% chunks. This will prevent you from having to stay too long in the property and is a good way of saving for your next property. The more you pay back then the more you can keep when it comes to selling the property

If you want a chat then get in touch - jonathan@bricksandmortarmortgages.co.uk

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