Hello and welcome to an Aitken Financial Services DEEP DIVE!
Today I am going to look at a scheme in Scotland designed to help First Time Buyers – The LIFT Scheme.
There aren’t many support schemes available to First Time Buyers at the moment.
We have seen the First Home Fund and Help to Buy disappear in Scotland so what does that leave for First Time Buyers who want to buy their first home but maybe don’t have the deposit they need?
Well, if you are a First Time Buyer in Scotland, the LIFT scheme could your answer to getting onto the property ladder.
What is the LIFT Scheme?
The LIFT scheme, or the LIFT Open Market Shared Equity Scheme, to give it it’s full title.
Is a scheme set up by the Scottish Government aimed at helping First Time Buyers and some other priority groups.
It works by the Scottish Government giving you a contribution between 10% and 40% towards your purchase.
It is aimed at First Time Buyers, but is also open to certain other groups.
- Social renters (people who rent from a Council or Registered Social Landlord)
- People with a disability who can demonstrate a housing need
- Members of the armed forces
- Veterans who have left the armed forces within the past two years
- Widows, widowers and other partners of service personnel who have lost their life while serving in the armed forces within the last two years
- People aged over 60 with a housing need are a priority group who do not need to take out a mortgage.
The amount you can spend on the property is capped and the thresholds are set depending on council areas and number of bedrooms.
You do need to apply for the scheme, but this is something that we can do for you.
Once approved, you have 12 weeks to find and buy your home, but this can be extended if needed by reapplying.
In order to be eligible for the LIFT scheme you must be unable to afford the property without the scheme’s support.
So it is not going to benefit everyone but we will help find out if it is right for you.
Also, all purchasers must be First Time Buyers, unless at least one purchase falls into one of the other priority groups.
And the property you purchase with LIFT must be your only home.
How does the LIFT Scheme work?
As long as you are eligible, LIFT can provide a big help towards buying your home.
As mentioned previously, you can get a deposit contribution from the government of between 10% and 40%.
This is an Equity Share, which means the Government hold an interest in that set percentage of your property, and when you sell it, they get that percentage back.
Most mortgage providers will want you to put in at least a 5% deposit for the LIFT scheme, although there is one lender that does not need a deposit at all!
From there, you then need to secure a mortgage for the remaining amount.
So far so good, but here is where the catch comes in.
The amount you can spend on a property is capped via certain thresholds that are put in place.
These vary and will depend on the council area you are buying in and the number of bedrooms in the property.
I have put together a few examples which will highlight this.
Another downside to using the LIFT scheme is you are not able to be as competitive due to being unable to offer above these set thresholds.
If you were buying without LIFT, you could offer £150,000 for a home valued at £120,000 if you wanted to.
With LIFT, this will be capped by those thresholds.
What are the LIFT Thresholds?
LIFT have set Thresholds for properties in every council area and they threshold will depend on the area if is in and the number of bedrooms.
Instead of looking at every Threshold, I have put together two examples.
Example 1 – A 3-bedroom property in Falkirk
The threshold for a 3-bed in Falkirk is £110,000.
Your deposit would be 5% so £5,500.
And if you were eligible for the full 40% from LIFT, you would get a contribution of £44,000 towards your deposit.
This means that the mortgage you would require would be £60,500.
If you weren’t eligible for the LIFT scheme and you were buying this same property with a 5% deposit, your mortgage would be £104,500.
So the deposit contribution can make a huge impact on your mortgage amount and what your monthly payments would be.
But let’s look at home the threshold can effect what you can offer.
If that 3-bed property in Falkirk has a home report value of £110,000, that is all you can offer. You cannot go above value in that example.
This means that you could lose out of someone not using LIFT decides to offer £115,000 for this property.
However, If that same property was valued at £100,000, then you could offer £110,000 provided you had the money, but again, the amount you can pay is capped based on the council area and number of bedrooms.
Example 2 – A 2-bedroom property in Edinburgh
The threshold for a 2-bed in Edinburgh is £180,000.
Your deposit would be 5% so £9,000
And if you were eligible for the full 40% from LIFT, you would get a contribution of £44,000 towards your deposit.
This means that the mortgage you would require would be £72,000
If you weren’t eligible for the LIFT scheme and you were buying this same property with a 5% deposit, your mortgage would be £171,000.
So again the deposit contribution can make a huge impact on your mortgage amount and what your monthly payments would be.
Now you will encounter the same issues with the price threshold and being able to offer more
How do you apply for the LIFT Scheme?
We can do all of that for you.
It is very similar to a mortgage application in terms of the documents you need, but LIFT do ask for some extra details that we can easily provide them with.
Once you have been approved you will get what is called a LIFT Passport. This will be for the council area and the property size that you have applied for.
It is valid for 12 weeks, but can be easily extended via reapplying.
Costs wise, applying to lift is free and the only charge they do apply is a supplement to cover their legal costs.
You would then have your own legal costs plus any mortgage broker fee and any other moving costs to factor it.
What happens once your bought a property with LIFT?
It’s yours!
You need to make sure you have appropriate buildings and contents insurance in place, but we can help you with that.
And you will certainly want to look at protecting the LIFT scheme and Mortgage debts via a form of life insurance, which again we can set up for you.
But aside from that and your household running costs, you have nothing else to pay.
LIFT don’t charge you any interest on the money you get and you don’t pay it back monthly.
But there is a slight catch when you do pay it back.
The Scottish Government want their percentage share back.
That means that if they give you 40% of a property valued at £180,000 – so £72,000, and you sell that property in 5 years for £200,000. They will want 40% of the £200,000 back, so you will need to pay them £80,000 + cover the legal costs.
I don’t think it is that bad a deal to be honest.
You can also buy out their share at any time via something called Staircasing, where you can pay it off in 5% chunks.
This can be more costly, as you need to have a valuation done every time you do this and you need to cover LIFTs legal costs for every transaction.
Summary
The LIFT scheme can be a huge help for First Time Buyers provided you meet the criteria.
Getting up to 40% towards your deposit is fantastic and it will help to keep your monthly mortgage payments down.
Of course there are a few downsides.
Mainly the price thresholds, they have not been updated in a while and I don’t feel that they are fully reflective of property prices in those areas.
Add to that the inability to offer above the threshold even if you had the funds.
It can reduce your competitiveness when bidding against someone not using the scheme.
Lastly, the Scottish Government will hold an interest in your property of the percentage they gave you.
So they will take a cut if and when you sell the property in the future.
I hope you’ve found this Deep Dive useful.
If you want to get in touch with me to discuss your eligibility for the LIFT scheme, or any other mortgage, then you can use the form below to get in touch.
Likewise, if there are any other topic you would like me to do a Deep Dive on, please let me know.
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