15 Sep 2014

Help to Buy (Scotland) Scheme: Where are we now?

Help to Buy (Scotland) Scheme: Where are we now?

Chris Comfort, Senior Solicitor, comments on the Scottish Government’s recent announcement that funding has already been fully allocated for this financial year and the effect this will have on the new build market. 

Chris Comfort, Senior Solicitor, comments on the Scottish Government’s recent announcement that funding has already been fully allocated for this financial year and the effect this will have on the new build market. 

The Help to Buy (Scotland) Scheme aims to help stimulate Scotland's house-building industry, and to help people buy a new build home from a builder who has been approved by the Scheme. Since its introduction last September, demand for the Help to Buy Scheme has, according to the Scottish Government, been extremely high. Figures report that it has so far helped more than 2000 people buy a home. 

At first glance, it certainly appears that the Help to Buy Scheme has been a game-changer for the industry. The Scheme brought increased confidence and momentum back into the new build market. However, last month it was announced that funding has been fully allocated for this financial year. As such, no further applications will be accepted for this financial year and all potential applicants will need to wait until April 2015 for funding.

Industry body Homes for Scotland responded by saying: "This news is extremely disappointing as it follows a recent meeting with a small group of the Homes For Scotland board and Deputy First Minister Nicola Sturgeon to voice our concerns regarding the budget situation and the need for a longer-term scheme." 

Given that some buyers have been relying on this Scheme for funding it is inevitable that there will be some deals which fall through this year. However, all is not lost, and further funding of £100 million has been made available by the Scottish Government for the Help to Buy (Scotland) Scheme in 2015/16. Applicants can now submit an application for this period although the funding will not be available until after 1st April 2015.

Despite this reassurance, there remain calls for some of next year’s funding to be filtered back into this financial year in order to ease the inevitable high volume of applications. Without extra funds being filtered into the pot for the current financial year, house builders will undoubtedly face a difficult market until April 2015.  This contrasts with the position in the English market, where the equivalent scheme is more extensively funded as far as 2020. ‘Homes for Scotland’, which represents the housebuilding industry in Scotland, has commented that it will continue to work with the Scottish Government on the development of a longer-term strategy on this issue. 

It is arguable that the Help to Buy Scheme might not have run into problems so quickly if it had been targeted solely at first-time buyers and lower-cost properties. Under present rules, the Scheme can be used by both first time buyers and existing home owners (provided they sell first) in order to purchase a home up to a maximum cost of £400,000; more than twice the Scottish average house price being £162,000.

In response to the news that funding had been exhausted for 2014/2015, Lloyds Banking Group (LBG) cut the amount it is prepared to lend by 70 per cent; from £500,000 to £150,000. LBG currently offer around half of all Help to Buy mortgages and is one of the most influential lenders in the sector. It is a distinct possibility that other large lenders will follow suit. This would undoubtedly affect first-time buyers, thus reducing the number of buyers entering the new build market. A reallocation of funds is therefore desirable in order to continue the steady growth in the new build market. Without a long term funding structure, the Help To Buy (Scotland) Scheme will struggle to reach its full potential and running out of money prior to the end of the next financial year will be inevitable. 

All buyers considering using the Help to Buy (Scotland) Scheme should contact their nearest branch of Aberdein Considine in order to obtain advice from one of our independent mortgage advisers.

Chris Comfort, Senior Solicitor


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