The property market has been buoyant for the last two years, with many homes selling for over the home report value. Consequently, property prices have risen by 14% on average across Scotland. Demand remains strong for new properties, despite inflation recently rising to 9% and interest rates, set by the Bank of England, increasing to 1% (which is still very low compared to previous decades).
We strive to always help buyers and sellers of properties by explaining each stage of the process. This is particularly valuable for first time buyers. In our latest article, we detail the process of bidding for a property and what you need to do if you’re offering over the home report value.
Offering on a property
It’s not every day you purchase your first home. It’s often an exciting and positive experience. Unfortunately, there are instances when miscommunication can mean people miss out on their first home.
The first stage before offering on a property is to speak to your lender / bank or qualified and regulated mortgage adviser. This way a Decision In Principle (DIP – also known as an Approval In Principle or AIP) can be obtained that will detail how much a mortgage company would lend to you for a property. This is based on your income and affordability. In some scenarios, particularly when a home goes to a closing date, the offers on a property can exceed the home report value.
As an example, if you are offering to buy a property with a home report of £150,000 and there’s considerable competition, you may decide you want to offer over the home report value. You choose to offer £165,000 (£15,000 / 10% over the home report figure). If you’re a first time buyer then your mortgage lender will only guarantee a mortgage up to the value of the home report (£150,000 in this example). At present, there are 95% mortgages so you would need to have a 5% deposit (or more). Assuming you’re applying for a 95% mortgage, you would need a deposit of £7,500 in this instance. However, if you also go over the home report value then you would need to have this money available as cash or equity. In the example above (£15,000 over home report) the amount you would need to have available would be £22,500 (£15,000 + £7,500) as well as conveyancing fees.
Whilst it doesn’t happen often, we have historically encountered scenarios where buyers thought the mortgage company would lend over the home report value.
Government schemes – LIFT
There is a government scheme to help first time buyers and priority groups purchase a home called Low-cost Initiative for First Time Buyers (LIFT). Over 13,000 people in Scotland have benefited from the LIFT scheme. Whilst the scheme has helped thousands of people, there are some limitations to be aware of to avoid disappointment.
If you decide to proceed with the LIFT scheme, the Scottish government can take an equity interest in your home. For example, if you could afford 70% of the home through a mortgage and deposit, the government could offer the remaining 30%. This can help you achieve a better mortgage rate and reduce your monthly payments. The government would receive their 30% back when you sell the home. If the house increases or decreases in value, the 30% of the sale price would be returned.
Whilst this scheme has been hugely beneficial to many people, there are rules that must be followed. In each area of Scotland there are thresholds, so you would only be able to bid up to a certain level for a property. The thresholds are determined on the number of rooms a property has and the region. Furthermore, you are not allowed to offer over the threshold, even if you have the money in your bank. Consequently, anybody utilising the LIFT scheme can only offer up to the home report value of a property that’s within the threshold. To check the thresholds in your area, please visit https://www.gov.scot/publications/open-market-shared-equity-thresholds/
Help with mortgages
If you are unsure on your financial position, then mortgage advisers that are qualified and regulated with the FCA can assist you. We can introduce you to a qualified mortgage adviser, if you wish. If you have any questions about buying your first home, please don’t hesitate to get in touch. Although we cannot provide financial advice, we would be delighted to explain more about the buying and selling process.