Our Guide to LIFT Scheme Mortgages
A report by the Guardian newspaper on the 27th of September 2018 revealed that the salary required by the average first-time buyer in the UK has risen by 18% in the past three years alone.
Currently, that average minimum salary stands at £53,000 in 20 of the country’s largest cities – including Edinburgh, Glasgow and Aberdeen.
For first-time buyers in those three cities – and throughout the rest of Scotland – however, LIFT scheme mortgages offer vital help and assistance.
What is the LIFT Scheme?
LIFT stands for – Low-cost Initiative for First Time Buyers (LIFT). Since the scheme’s introduction in 2007, it has helped more than 12,000 people buy their first home, says the Scottish Government.
LIFT includes a number of avenues of support for first-time buyers, including:
- a New Supply Shared Equity scheme (NSSE), which is available in parts of Scotland where first-time buyers may find it especially difficult to find affordable housing and helps them to buy a new-build home from a council or housing association – the government loan is covered by a standard security on the property itself;
- Help to Buy (Scotland) – between 2019 and 2021, the Scottish government is funding an additional £100 million for its Affordable New Build and Smaller Developers Schemes, which are expected to help around 18,000 people buy their first new-build homes; and
- once again, where affordability is likely to be an issue, an Open Market Shared Equity (OMSE) pilot scheme is being trialled in 2018 and 2019, providing £70 million of funding to help people buy a first home for sale on the open market.
How does the New Supply Shared Equity (NSSE) scheme work and who is eligible to apply?
The scheme is designed to help households on low to moderate incomes who want to own their own home, but who are unable to pay the full price for a house offered for sale by a housing association or local council.
Although it is a shared equity scheme, the buyer owns the whole of the property – but typically pays only 60% to 80% of the purchase price, whilst the Scottish Government pays the remainder.
The Government’s equity stake in the home is backed by its security over that proportion of the purchase it has funded. What that means is that if the owner decides to sell the property, the Scottish Government is paid back that same proportion of its value at the time it is sold. So, if the Government funded, say, 50% of the purchase, it receives 50% of the sale value of the property when it is sold.
The scheme is designed primarily for first-time buyers, with priority given to:
- those renting social housing – homes currently owned by a housing association or council;
- people over the age of 60;
- the registered disabled;
- members of the armed forces and veterans who have left military service within the past two years; and
- widows, widowers and other partners of armed forces personnel, whose partner was killed in service within the past two years.
NSSE is primarily intended for first-time buyers, but it may also be made available to those who have owned their own home in the past but whose circumstances have changed significantly – through a marriage breakdown, for example.
How do I apply for the NSSE scheme?
Your first step is to check in which areas of Scotland any NSSE schemes are available – listings are updated on the Scottish Government website.
Contact the appropriate local council or social landlord directly and they will provide further details, including the relevant application forms.
Together with any particular application details, you will also need to provide a statement of:
- your current income;
- the size of mortgage you are able to afford;
- how much you are able to contribute personally to the purchase; and
- information about your household and where you currently live.
How does the Open Market Shared Equity (OMSE) scheme work and who is eligible to apply?
The OMSE scheme is also a shared equity scheme, but in this case available to those on low to moderate incomes who want to buy their home on the open market.
Under the scheme, you take on the lion’s share of the purchase – between 60% and 90% of the home’s cost – whilst the Scottish Government retains the remaining equity under an agreement entered into with you by way of a standard security or mortgage charge.
Different maximum price thresholds (or price ceilings) exist in various parts of Scotland, so it is important to check what these are in any particular area you might want to buy.
When you buy your home through the OMSE scheme you become its outright owner and assume the full range of responsibilities of other home owners:
- making the mortgage repayments
- arranging home building and contents insurance;
- paying for repairs and maintenance;
- paying your council tax;
- paying your water, lighting and heating bills; and
- buying the fittings and furniture for your new home.
How do I apply for the OMSE scheme?
If you are interested in accessing the scheme, contact the Scottish Government’s agents and make an initial application.
If this is successful, you then receive a “passport letter” advising you of the maximum price you may pay and the maximum size of the home you may buy. The letter also advises you of the next steps to take towards completing the purchase.
How much can I borrow under a LIFT mortgage scheme?
As with any mortgage, different lenders are likely to apply different criteria when calculating the maximum amount you may borrow.
As a very broad rule of thumb, the maximum is likely to represent between four and four and a half times your income – with some lenders stretching as far as five time.
But the detail lies very much in the calculation of your actual income and expenditure – about which you may be expected to answer a raft of questions.
The online mortgage affordability calculator published by the official Money Advice Service may help to give you a closer idea of the size of mortgage you might be offered.
It is not easy being a first-time buyer on a low to moderate income anywhere in the UK.
In Scotland, at least, there are a number of initiatives to help you gain that first footing on the property ladder and, here at Needing Advice, we may help you find the most suitable mortgage when applying to the LIFT Scheme.