Scottish Building Society has removed the need for first time buyers to put down a deposit on a new-build mortgage, in a bid to help the housing industry come back after lockdown.
Instead of a deposit from buyers, the building society has agreed to accept a 5 per cent deposit from house builders where the purchase has been made with the help of the Scottish government's ‘First Home Fund’.
The First Home Fund is a £150m shared equity pilot scheme that provides first-time buyers in Scotland with up to £25,000 to help them buy a property.
Under the initiative prospective buyers are usually required to provide a deposit of at least 5 per cent, which the building society described as a “major barrier for many whose earnings and savings have been hit by Covid-19”.
Scottish Building Society is one of 12 lenders that offers mortgages under this scheme.
Paul Denton, CEO of Scottish Building Society said: “As we seek to rebuild the economy post Covid-19, it is important that as many people as possible have access to affordable housing.
“We were proud to be one of the first lenders to take applications for the Scottish government’s First Home Fund.
"Getting a deposit together is the main barrier for customers trying to get on the property ladder; in some cases, one that has been exacerbated by the impact of lockdown on personal finances."
However, a survey last month by the Building Societies Association, which represents building societies across the UK, found that prospective homebuyers thought job insecurity was their greatest barrier to owning a property, ahead of raising a deposit, for the first time in a decade.
Donna Kerr, owner and mortgage adviser at Greenshoots Financial Ltd, said: “This is very welcome news from the Scottish Building Society as this will help first-time buyers purchase new build properties.
“However, buyers should always seek independent mortgage advice to ensure they get the most appropriate mortgage based on their circumstances as taking a 5 per cent builders deposit and using the First Home Fund won’t necessarily be right for everyone.”
The First Home Fund was launched by First Minister Nicola Sturgeon to make the housing market fairer by providing a total of £150m in funding until March 2021.
All first-time buyers in Scotland can apply for an interest-free loan of up to £25,000 towards the cost of a home, if at least 25 per cent of the property cost is covered by a mortgage.
There are no limits on the property value and the government contribution can be up to 49 per cent.
Under the scheme loans are secured on the equity of the home and buyers must repay the government’s percentage equity share
when they sell.
For example, if the £25,000 loan amounts to 10 per cent equity share in the home, the Scottish government will receive 10 per cent of the sale price when the property is sold.