This week the Scottish government's Help to Buy Scheme was launched across the country. £220m will be allocated over three years to help eligible home-buyers with an equity loan of up to 20% of the purchase price of a new-build home.


new build

 

The scheme will be open to all first-time buyers and existing homeowners who are buying a new-build home from participating home builders. The initiative is similar to the UK government's Help to Buy scheme, which has been active in England since April.

South of the border Help to Buy allows people taking their first step onto the property ladder to borrow from the UK Government interest-free for an initial five years.

Borrowers need a 5pc deposit and must take out a mortgage to cover the remaining 75pc of the cost of the property. After the five-year interest-free period ends, borrowers will be charged a fee of 1.75pc of the loan's value. This fee will increase every year at 1pc above inflation. These fees only count toward the Government loan and come on top of the mortgage repayments. Borrowers must pay back the equity loan when they sell the home or at the end of the mortgage period - whichever comes first.

A second phase of the UK Help to Buy initiative will be available to both first-time buyers and existing home owners buying newbuild and older properties from this week onwards. Borrowers will need a 5pc deposit, while lenders will be able to buy a guarantee from the Government covering up to 15pc of the value of the property. This will make it less risky for lenders to offer mortgages to borrowers with only a 5pc deposit and should enable them to offer cheaper rates.

Critics of the scheme believe that Help-to-buy will inflate demand creating a house-price bubble. In response to recent criticism (most notably from business secretary Vince Cable) George Osborne has given the Bank of England the power to curb the scheme if it is having a negative effect on the economy. The Bank's Financial Policy Committee will review the programme every year, rather than every three years as was originally planned.

Scotland's Help-to-Buy scheme will apply to homes worth up to £400,000 while the limit in the English version is £600,000. The progress of the Scottish scheme will be monitored by a group including the Council of Mortgage Lenders and housebuilding industry body Homes for Scotland.

Deputy First Minister Nicola Sturgeon said: "There is no doubt that getting onto or moving up the property ladder has become tougher in recent years.

"House buyers are being hampered by the lack of affordable mortgages, with high deposits often a major barrier."The Help to Buy (Scotland) scheme will not only help people to buy their first home, it will also help 'second-steppers' and others move to a new property.

"The scheme will also help support the housing industry alongside our commitment to investment in affordable housing across Scotland."

House prices are rising across the UK. Last week, figures from Nationwide Building Society showed all 13 UK regions saw annual house price growth in the third quarter, with the average property now rising in price by 5pc per year. This is expected to continue in the coming months as more people have access to mortgages, which will further stimulate the market.

(Image: Martin Pettitt/FlickrCC)

Blair Cadell are a leading firm of Edinburgh solicitors, dealing in a wide range of property, business, tax and personal legal services. We base our reputation and success on clients returning for advice and assistance they can rely on at an affordable price.