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New Help to Buy (Scotland) scheme, helping homebuyers and homebuilders

The Help To Buy (Scotland) scheme, which provides a financial incentive to buyers of a new build house, has now been launched.

Help To Buy (Scotland) follows the successful launch in April by Chancellor George Osborne in England and Wales of the Help To Buy scheme. The English scheme has proved to be very popular, both with housebuilders who have agreed to participate in the scheme and with buyers who receive financial support through the scheme in order to purchase a new house.

Earlier this year the Treasury made the funds available to the Scottish Government for a similar scheme and the scheme was launched today with Scottish Government announcing that they will allocate £220 million over the next 3 years.

The essential characteristics of the Help to Buy (Scotland) scheme are:-

  • The scheme will operate from its launch until 31 March 2015. Any housebuilder who will have new houses for sale in Scotland during that time is eligible to participate.
  • The scheme is designed to support homebuyers who would otherwise not be able to afford to purchase their preferred new home. Qualifying purchasers, once their financial circumstances are assessed, are eligible to receive financial support from Scottish Government of between 10% and 20% of the asking price for a new house of their choice, provided it is being sold by a participating builder.
  • The scheme operates on a shared equity basis, in a similar way to existing Scottish Government schemes under the Low-cost Initiative for First-Time buyers (LIFT). In essence, the purchaser agrees to buy a new house from a builder in the usual way. The purchaser takes out a mortgage based upon what they can afford to borrow and repay. The purchaser may also have to pay a deposit of up to 5% of the purchase price of the house, depending upon the requirements of their mortgage provider. The gap between the purchase price of the house and the amount of the purchaser's mortgage and deposit is then funded by Scottish Government (within the range of 10% to 20% of the price). The purchaser acquires full title to the house at the point of completion, but grants a standard security over the title to the house in favour of Scottish Ministers to secure Scottish Ministers' retained "equity stake". This standard security ranks behind the primary lender's security over the property.
  • Shared equity owners can "buy out" Scottish Government's equity stake over time and while they are encouraged to do so, they are not obligated to do so within in any set timescale. Unlike the English scheme, which charges owners interest on the "equity loan" after five years in order to encourage owners to acquire 100% of the equity within their house, no interest will be charged by Scottish Government under Help to Buy (Scotland).
  • The sale price charged by the housebuilder will be the open market value of the house (subject to this being supported by an independent valuation). The housebuilder is not required to reduce the price or subsidise the sale. The maximum sale price permitted by Help to Buy (Scotland) will be £400,000 (which contrasts with a maximum permitted sale price in England of £600,000).
  • Eligible properties must be newly-built or newly converted. Second-hand properties are not covered by the scheme nor will part-exchange arrangements be eligible.
  • Eligible purchasers must not already own a property, or must have sold an existing property before buying a new house with support from the Scheme. Purchasers must also reside in the house themselves and so Buy to Let landlords cannot take advantage of the scheme. Unlike existing Scottish Government LIFT schemes, which are expressly targeted at first time buyers, Help to Buy (Scotland) is open to so called "second steppers" – people who already own a property which they are looking to sell in order to move up the housing ladder.

There are clear benefits to housebuilders in choosing to participate in the Help to Buy (Scotland) scheme. Unless the builder focuses on the higher end of the residential market (in which case their sale prices may exceed the maximum price permitted by the scheme), participation means accessing a significantly wider pool of prospective purchasers who are able to afford to pay the asking price, with the builder receiving the whole of the asking price at the point of sale. There is therefore a quick return on capital for the builder, with no need to leave any money tied up in a house (which can be the case with the new supply shared equity for developers LIFT scheme, or the MI New Home Mortgage Indemnity Scheme).

For those individuals who qualify for support, the benefits are also clear – a house which suits someone's needs and which would previously have been unaffordable may now be within that person's reach, without the person having to save up a significant deposit in order to qualify for a mortgage, or to borrow from family members. Purchasers will also have access to a wide choice of house, since any new houses built by participating builders across Scotland can be bought with support from the scheme.

While the scheme has a set life span (and a limit to the budget), if it does attract a similar level of interest to the English scheme it should serve to underpin the new building residential market and support property values, giving confidence to builders to develop out sites, and assisting many people to better meet their own housing needs.

To find out more about the scheme and how Harper Macleod may be able to assist, please contact Derek Hogg, Partner on 0141 227 9297 or [email protected].