Why Buyers Are Borrowing More
Prices in Scotland are still rising. Registers of Scotland put the average Scottish home at £198,000 in August, up 2.9% on a year earlier, against 0.9% across the UK. At the same time, mortgage costs have climbed. Bank of England figures show the average rate on new fixed-rate mortgages rose 0.65 percentage points between March and August.
When prices and borrowing costs both rise, deposits do not keep pace, so buyers fill the gap with bigger loans. Lenders have also widened their higher loan-to-value ranges since the Financial Policy Committee relaxed some lending rules last year, which has kept the door open for buyers with smaller deposits.
The result is a market where first-time buyers are still buying, but carrying more debt to do it. New first-time buyer mortgages in Scotland fell 4.7% year on year in the second quarter, according to UK Finance. Demand has not gone away. It has become more cautious.
Ignore the English Headlines
Last week's UK Budget confirmed the Your First Home scheme: a 2.5% deposit with a government equity loan of up to 20% on new-build homes. It is a meaningful scheme, but it applies in England only. Housing support is devolved, and Scottish buyers should not plan around it.
What Scottish buyers do have:
The First Homes Fund. The Scottish Government will contribute up to £10,000 towards a first home, in return for an equivalent share of the property. To qualify you must never have owned a home anywhere in the world, the home must be your only residence in Scotland, and you need a repayment mortgage covering at least 25% of the price.
LBTT first-time buyer relief. First-time buyers pay no Land and Buildings Transaction Tax on the first £175,000, compared with £145,000 for other buyers. That saves up to £600, and on many Scottish first homes it means no LBTT at all.
Shared equity on new build. The New Supply Shared Equity scheme helps first-time buyers and some priority groups buy new homes from councils and housing associations.
Practical Steps for First-Time Buyers
Stress test your budget. A higher loan-to-value usually means a higher rate. Ask your adviser what your payments would look like if rates were a point higher when you come to remortgage.
Get your agreement in principle early. In Scotland, sellers expect buyers to be ready to move. An up-to-date agreement in principle makes any offer, including one at a closing date, far more credible.
Read the Home Report closely. Every Scottish home for sale comes with one, and it includes a valuation. Lenders lend on that valuation, not the asking price, so offering well above it means making up the difference from your own funds.
Check the scheme rules before you offer. If you plan to use the First Homes Fund, confirm you are eligible first. Your solicitor will need to build it into the missives timeline.
Think beyond the price. Factor fees, buildings insurance, council tax and repairs all add up, particularly on flats with shared maintenance.
The Simpson & Marwick View
A record loan-to-value is not a warning sign on its own. It reflects buyers who want to own and lenders willing to support them. But it does mean the margin for error is thinner. The buyers who do best in this market know exactly what they can afford, understand the Scottish support available, and are ready to act when the right home appears.
