Scottish First Homes Fund: What First-Time Buyers Need to Know

Written by Fiona Simpson, Mortgage Adviser,  The Mortgage Broker, Edinburgh

The Scottish Government’s new First Homes Fund is now LIVE. 

It gives eligible first-time buyers in Scotland access to a shared equity contribution of up to £10,000 towards buying a home worth up to £300,000.

This scheme will be searched by many people as the First Home Fund, because the previous Scottish Government scheme used that name. The old First Home Fund closed in March 2022. The new scheme is called the First Homes Fund. The names are similar but the rules are different.

This guide explains what has now been confirmed, who can apply, how the application works, which lenders are currently listed, and what first-time buyers should understand before relying on the scheme.

Quick Overview of the First Homes Fund

• The First Homes Fund is now live in Scotland.
• It provides up to £10,000 towards buying your first home.
• The property must have a purchase price of up to £300,000.
• You must be buying a home in Scotland as your main and only home.
• You need a capital repayment mortgage of at least 25% of the purchase price or valuation, whichever is lower.
• You may also need a deposit, usually around 5%, subject to lender requirements.
• The Scottish Government takes an equity stake in the property.
• There are no monthly payments or interest on the Scottish Government stake.
• You normally repay the equity share when you sell, or you can buy it out earlier.
• Applications are made online after your offer is accepted or your new-build plot is reserved.
• You must apply before your solicitor concludes missives.
• There is a £650 application fee after an award letter is issued.
• Current listed lenders include Bank of Scotland, Glasgow Credit Union, Halifax,
• Leeds Building Society, Lloyds Bank, NatWest and Scottish Building Society.

What is the First Homes Fund?

The First Homes Fund is a Scottish Government shared equity scheme for first-time buyers.

It can provide up to £10,000 towards buying a home in Scotland. In return, the Scottish Government holds an equity stake in the property.

You own the home outright and hold the full title. You are responsible for maintenance, insurance, repairs and running costs.

The Scottish Government does not charge monthly payments or interest on its stake. Instead, the stake is normally repaid when you sell the property. You can also choose to buy out the Government’s stake earlier.

Is it First Home Fund or First Homes Fund?

This is where buyers can get caught out.

The old scheme was called the First Home Fund. It ran from December 2019 until March 2022 and is now closed.

The current scheme is called the First Homes Fund.

For search purposes, many people will still type “First Home Fund Scotland” into Google. That is understandable, but you need to make sure you are reading guidance for the current First Homes Fund, not outdated information from the previous scheme.

Who can apply for the First Homes Fund?

You can apply if you:

• have never owned a home anywhere in the world, either alone or jointly
• are buying a property in Scotland as your main and only home
• are taking out a capital repayment mortgage of at least 25% of the purchase price or valuation, whichever is lower
• are buying a property with a purchase price of up to £300,000
• meet the scheme’s affordability and sustainability checks

If you are buying with someone else, at least one of you must be a first-time buyer. If the other buyer currently owns a property, they must sell it before your purchase completes.
Joint applications receive one First Homes Fund award, not separate funds per buyer or applicant.

Who cannot apply?

You cannot apply if you:

• are buying with cash
• have previously owned a home anywhere in the world
• are buying a property to rent out
• are using an interest-only mortgage
• have an open application to another Scottish Government shared equity scheme
• are using part exchange
• are buying a property that will not be your main and only home

You can use builder incentives and assisted purchase, but part exchange is not allowed.

How much can you get?

The maximum First Homes Fund contribution is £10,000.

You can choose to take a smaller amount. This may reduce the Scottish Government’s equity share in the property.

The Scottish Government contribution cannot exceed £10,000 or 49% of the property value or purchase price, whichever is lower.
For most buyers, the headline figure will be the £10,000 maximum contribution.

How does shared equity work?

Shared equity means the Scottish Government contributes towards the purchase and receives a percentage stake in the property.

You fund your share through your deposit and mortgage. The Scottish Government’s contribution makes up part of the remaining purchase structure.
For example, if the Scottish Government contributes £10,000 towards a property valued at £100,000, it would hold a 10% equity stake.

If you later sell the property, the Scottish Government usually receives the same percentage of the sale price or current value, depending on the scheme rules.

That means if your home rises in value, the amount repaid may be more than the original contribution. If the value falls, the amount may be lower, based on the relevant percentage calculation.

Do you still need a mortgage?

Yes absolutely, and you must must take out a capital repayment mortgage of at least 25% of the purchase price or valuation, whichever is lower. Interest-only mortgages are not eligible. 

You may also need a deposit, usually around 5%, subject to lender requirements. Lenders will still assess your income, credit file, outgoings, deposit, property type and affordability. The First Homes Fund can support your buying position, but it does not guarantee that a lender will approve your mortgage.

What lenders are currently listed?

The Scottish Government buyer guidance currently lists the following lenders as offering mortgages through the First Homes Fund:

• Bank of Scotland
• Glasgow Credit Union
• Halifax
• Leeds Building Society
• Lloyds Bank
• NatWest
• Scottish Building Society

This list may change, so buyers should check the latest official guidance before applying.

What is the 45% affordability rule?

As part of the application, you must show that your mortgage and debt repayments will not exceed 45% of your net income.

The administering agent completes a sustainability check. This is separate from the lender’s own mortgage affordability assessment.

You may need to provide evidence such as:

• three months’ payslips
• an SA302 if you are self-employed
• benefit statements, if relevant
• details of debts and regular repayments

This matters because a buyer could meet a lender’s initial criteria but still fail the scheme’s sustainability check.

When can you apply?

You can apply after:

• your offer has been accepted on an existing property, or
• you have reserved a new-build property

You must apply before your solicitor concludes missives and this timing is important. If you leave it too late and missives have already been concluded, you may not be able to apply.

How do you apply for the First Homes Fund?

The process is broadly:

1. Speak to a mortgage adviser or independent financial adviser to check the scheme and mortgage position.
2. Find a property with a purchase price of up to £300,000.
3. Have your offer accepted, or reserve a new-build property.
4. Appoint a solicitor.
5. Apply online through the First Homes Fund application route before missives are concluded.
6. Provide the required documents.
7. If successful, receive an award letter.
8. Pay the £650 application fee.
9. Conclude missives within three months of the award letter.
   Complete the purchase within six months after missives are concluded.

Your mortgage adviser can apply on your behalf, if appropriate.

What documents do you need?

The application guidance says you will need:

• your solicitor’s details
• a mortgage Decision in Principle
• proof that mortgage and debt repayments will not exceed 45% of your net income
• three months’ payslips, or SA302 if self-employed
• a Home Report for open market purchases
• a Reservation Agreement for new-build homes
• a Scheme 1 Valuation for private sales, where required

Your solicitor and mortgage adviser can help you understand what is needed for your own purchase.

Is there an application fee?

Yes. There is a £650 application fee.

This is requested when the award letter is issued. The fee must be paid at least three weeks before settlement.

The fee is refunded if the sale does not conclude, unless false or misleading information has been provided. The fee cannot be deducted from the Scottish Government contribution

What happens after the award letter?

If your application is successful, an award letter is issued and you then have three months to conclude missives. If you miss that deadline, your application will be cancelled and you would need to apply again.

After missives are concluded, there is a further period of up to six months for settlement to take place. Your solicitor handles the legal process and we will recommend the most suitable solicitor for your needs. The funding is passed to your solicitor alongside your mortgage to complete the purchase.

Can you use a Help to Buy ISA or Lifetime ISA?

Yes, you can use the proceeds of a Help to Buy ISA or Lifetime ISA towards your deposit, subject to the usual rules for those products. This does not mean you can combine the First Homes Fund with another Scottish Government shared equity scheme.

Can you combine the First Homes Fund with another Scottish shared equity scheme?

No, you are unable to combine the First Homes Fund with another Scottish Government shared equity scheme, such as Open Market Shared Equity or New Supply Shared Equity.

If you have an open application to another Scottish Government shared equity scheme, you must withdraw it before applying for the First Homes Fund.

Can you buy above valuation?

Yes, but tread carefully here as you can pay above valuation in cash. However, please note that if you do, the Scottish Government equity stake is still based on the valuation figure, not the higher purchase price.

Paying above valuation can increase your risk of negative equity. This means you could owe more than the property is worth.

This is not something to brush over. If you are using the First Homes Fund and paying above valuation, you need to understand the numbers clearly before proceeding.

Can you buy out the Scottish Government’s stake?

Yes, you can increase your share at any time in increments of 5% or more. This is sometimes called staircasing. The amount you pay is based on the property’s current value at the time, not necessarily the original purchase price. If your share is already 90% or more, any further increase must take you to 100%.

You will need a property valuation before increasing your share, and you are responsible for the costs.

What happens when you sell?

You must contact the administering agent before putting the property on the market. When you sell, the Scottish Government receives its percentage share of the sale price or current value, depending on the scheme rules.

For example, if the Scottish Government owns 10% and the property sells for £200,000, the Scottish Government would receive £20,000.

You need agreement to sell for less than 95% of the current value.

Is the First Homes Fund right for every first-time buyer?

No it doesn’t apply to all first-time buyers and you must check if you are eligible.

The First Homes Fund could help if you are close to buying but need extra support towards the purchase, however, it is not automatically the right route for everyone.

You need to consider:

• whether you meet the first-time buyer rules
• whether the property is within the £300,000 cap
• whether your lender accepts the scheme
• whether your mortgage and debts fit the 45% affordability test
• whether you understand the shared equity repayment
• whether the £650 fee fits your budget
• whether you are comfortable with the Scottish Government holding an equity stake

The Mortgage Broker can help you understand how the scheme may fit with your wider mortgage position. They cannot remove the scheme rules, but they can help you prepare properly.

FAQs

Your home may be repossessed if you do not keep up repayments on your mortgage.

Written by Fiona Simpson, Mortgage Adviser,  The Mortgage Broker