This summary presents the key findings from a qualitative study of the effectiveness of the Scottish Government's pilot shared equity home ownership scheme, the First Home Fund.
The First Home Fund is a £200 million pilot shared equity scheme to help first-time buyers buy their first home. It provides a contribution of up to £25,000 towards the purchase of a property under a shared equity agreement.
This study, carried out by Craigforth, complements quantitative analysis conducted in-house by Scottish Government analysts and together this work will form an overall evaluation of the First Home Fund. The quantitative analysis can be accessed at the Scottish Government's First Home Fund website.
Research questions and approach
The key research questions for this study were:
- What are stakeholders' experiences and views about the First Home Fund?
- Why are buyers using the First Home Fund?
- What are the barriers, if any, to using the First Home Fund for purchasing a home?
- What effect, if any, has the £550 application fee had on applications?
- What effect, if any, has the First Home Fund had on stakeholders' business?
- In what way, if any, has the First Home Fund affected the other shared equity schemes?
All research was carried out by semi-structured interview, with all interviews conducted by telephone or video call from late October to December 2020.
The key professional stakeholder groups for the study were:
- Independent Financial Advisors (IFAs), with a particular focus on those providing mortgage-related advice to first-time buyers. Eight interviews were carried out, with interviewees ranging from those working for larger companies through to a sole trader.
- Lenders that offer a mortgage product that may be available to customers using the First Home Fund. Five interviews were carried out spanning UK wide banks or building societies and local credit unions.
- Housing developers, with five developers and Homes for Scotland participating. Each of the developers is also involved with the Scottish Government's Help to Buy scheme.
The study also gathered the views and experiences of those who had applied to the First Home Fund. They included:
- Those who have completed a home purchase using the First Home Fund (Buyers).
- Those who applied but have not completed a home purchase using the First Home Fund (Non-buyer). This included those who had not completed their purchase at the point they were invited for interview and those who had applied but had not gone on to use the First Home Fund.
Fifty five interviews with applicants were carried out: 49 Buyer interviewees had bought with support from the First Home Fund, and six Non-buyer interviewees had not. Non-buyers are only referred to specifically when the distinction is relevant. Otherwise the group of 55 interviewees are referred to as Buyers.
The impact of the COVID-19 pandemic has clearly been central to the experiences of many of those participating in this study. Although some Buyers had already completed their home purchase before the first national lockdown began, many others did so very firmly within a COVID-context. However, although the impact of COVID-19 has at times been significant, in other respects the experiences and views of study participants draw on, and are pertinent to, a context which is not dominated by a global pandemic.
The shared equity approach
A clear message was that if people had been able to purchase the same home without accessing a shared equity scheme, they would have preferred to do so. This was generally about a preference for being independent and owning all of their home. However, when this was not possible, shared equity was seen as a good, pragmatic choice. In particular, Buyers welcomed the opportunity to buy in areas to which they had connections but might otherwise not be able to afford.
All the lenders, developers and IFAs were supportive of Government-led and backed approaches that help people access the owner occupied housing market. They thought that a strength of shared equity approaches was in enabling first-time buyers to overcome difficulties in saving for a deposit.
All the lenders said the decision to offer a First Home Fund-compatible mortgage product had been a relatively easy and straightforward one. They welcomed the relatively straightforward eligibility criteria and application processes for the First Home Fund. Like lenders, developers said it was a straightforward and obvious decision to promote the First Home Fund.
Awareness and ease of understanding
Professional stakeholders generally reported that Scottish Government communication about the First Home Fund had been good. However, the experience of developers was more mixed, with a view that the launch of the First Home Fund was not as well organised as had been the case for other Scottish Government shared equity schemes.
There was a lot of variation in how Buyers had become aware of the First Home Fund. Some had carried out their own, primarily web-based, research, others had heard about shared equity and/or the First Home Fund from family, friends or colleagues and others through early conversations with a mortgage advisor, lender or developer.
A general observation was that the First Home Fund had not been well publicised and that prospective buyers are only likely to have known about it if they had actively sought out information on funding a first home purchase.
A consistent finding across this study has been that the First Home Fund's approach to supporting first-time buyers is generally considered to be a straightforward and easy to understand one.
Key eligibility criteria for the First Home Fund
Being a first-time buyer: For many of the Buyers, purchasing their first home was a much planned, saved for and anticipated event, with some speaking of the security and stability they felt would come with owning their own home. The preparation to buy phase tended to be very much focused on saving, with the high levels of support for the first-time buyer focus associated with the challenges of trying to pull a deposit together.
Those with an interest in the wider operation of the housing system often highlighted the importance of first-time buyers to a well-functioning owner occupied housing sector. The First Home Fund was seen as having a key role to play in helping maintain good levels of demand from first-time buyers, particularly over the period when high loan-to-value (LTV) mortgage products have been unavailable.
Maximum £25,000 equity stake: There was strong support for the maximum equity stake taken by the Scottish Government being set at £25,000. This was generally seen to be appropriately pitched at a level suitable for a substantial majority of first-time buyers in Scotland. It was also felt to be a good fit with local housing market conditions, perhaps excepting Edinburgh and some other small pockets of high property values.
Choice of new build or resale: For many, one of the key strengths of the First Home Fund is its flexibility – and the limited restrictions on the age, type and size of property that can be bought. Some contrasted the flexibility of the First Home Fund with the Help to Buy Scheme which was limited to the purchase of newly built homes. Others welcomed the flexibility of being able to purchase a new build at a higher price than the £200,000 limit in place for the Help to Buy scheme.
Being able to offer over value: The potential to purchase at over the Home Report valuation was also seen as a strength. For some, the combination of being able to bid above the valuation and the lack of an upper price threshold (as below) had been critical in enabling them to buy the property they wanted. However, the sums involved tended to represent a small proportion of the property value and the decision appeared to have been carefully considered, especially in relation to affordability.
IFAs and lenders observed that the flexibility to offer over value was particularly important for those trying to buy in areas with buoyant housing markets and where properties routinely sell at over Home Report value.
No property price cap: Just as being able to offer over value was seen as opening up more options and greater choice for prospective buyers, the absence of any property price cap was also highlighted as a key advantage of the First Home Fund's approach. Developers, lenders and IFAs all welcomed the absence of any purchase price constraint, noting its particular value in opening up support to first-time buyers looking for a larger family home.
No means testing: In addition to expanding the range of people who are eligible for support, absence of means testing was seen as eliminating one of the more confusing elements of other schemes. Part of the much-valued simplicity of the First Home Fund stemmed from a potential buyer, or their advisor, being able to tell almost instantly that the First Home Fund would be an option.
Impact on Buyers
Dealing with changes to mortgage offers: For some, their home purchasing experience has been set very firmly within the context of COVID-19, and in particular the disappearance of most low-deposit mortgage deals. Some Buyers had not planned to use the First Home Fund, but it became the critical bridge that allowed them to proceed when LTVs shifted in the wake of the pandemic.
The timing or type of purchase: Most Buyers explained that accessing the First Home Fund had either allowed them to buy a little earlier than they might otherwise have done or that it allowed them to buy a more expensive property. Many thought that without the First Home Fund they would have been most likely to postpone purchasing and carry on saving for their deposit. For others, in particular those who were a little older and/or who had or were planning to have children, buying their first home perhaps came with a greater sense of urgency.
While for some the purchase of a larger home, or a home in a different area, was very much associated with their immediate needs, others suggested that by 'trading up' as they had, they had been able to purchase a property that would be likely to meet their needs in the medium term at least.
Conclusions to research questions
What are stakeholders' experiences and views about the First Home Fund?
Overall, the evidence points clearly to interviewees across the different stakeholder groups having a positive experience of, and views on, the First Home Fund. Buyers generally believed it had made a real difference to them and, for some, this difference had been life changing.
All stakeholders felt the considerable degree of flexibility permitted by the First Home Fund's eligibility criteria to have worked well and, overall, it was seen as a helpful addition to the range of shared equity options.
Why are buyers using the First Home Fund?
First and foremost, the First Home Fund enabled first-time buyers to overcome the challenges of getting a deposit together, particularly for those without access to financial support from family or friends.
The COVID-19 pandemic heightened the importance of the First Home Fund and for some, the Scottish Government's equity stake became vital to plugging the funding gap created by the disappearance of most low-deposit mortgage deals.
Accessing the First Home Fund had allowed most Buyers to bring their home purchase forward and had sometimes enabled the purchase of a larger home and/or a home in a preferred area.
What are the barriers, if any, to using the First Home Fund for purchasing a home?
Stakeholders did not identify any routine or frequently encountered barriers to using the First Home Fund to purchase a new home.
What effect, if any, has the £550 application fee had on applications?
Buyers were generally accepting of a fee being payable and of that fee being set at £550. Other stakeholders also felt the application fee presented few issues.
What effect, if any, has the First Home Fund had on stakeholders' business?
Lenders reported having been very busy since the housing market re-opened at the end of the first lockdown. However, First Home Fund-related applications as a proportion of all applications remained very modest.
IFAs reported that they had been dealing with a surge in enquiries since near the end of the lockdown in June 2020 and that First Home Fund-related enquiries had remained at significant levels throughout summer and into the autumn.
From a developer perspective, the First Home Fund was seen as addressing some of the more problematic aspects of the Help to Buy scheme and to be having a positive impact on numbers of first-time buyers seeking to buy a new home.
In what ways has the First Home Fund affected other shared equity schemes?
Although evidence is limited, feedback from Buyers and other stakeholders suggests that the First Home Fund may be the preferred option for at least some buyers who could also access one of the other Scottish Government shared equity options. Amongst professional stakeholders, the general consensus is that if the First Home Fund is a viable option, it will typically be a buyer's first choice.
Extent to which First Home Fund is meeting its core objectives
The stated objectives of the First Home Fund are to help first-time buyers put together a mortgage deposit in order that they can purchase a home that meets their needs, which is located in the area where they want to live.
It is hard to draw firm conclusions solely from this qualitative dimension of the wider evaluation study, especially as much of the evidence has been provided by those who have in some way benefited from the First Home Fund. Keeping in mind this qualification, the evidence suggests strongly that the First Home Fund has enabled some buyers to purchase a home that meets what they consider to be their needs, but also their preferences.
By accessing the First Home Fund, some study Buyers have been able to purchase a more expensive property than they might otherwise have afforded. Without accessing the First Home Fund, these Buyers could probably have afforded to buy a home that met their needs, either now or in the not too distant future. However, they tended to say that in the absence of support, they would have continued to save until such time as they could afford to buy their preferred type of property or in their preferred location.
An important issue for any shared equity policy is whether it has extended homeownership to households who might otherwise never have been able to buy a home or whether it has mainly benefitted households who would have bought at a later date.
For the most part, the qualitative evidence suggests that First Home Fund has mostly benefited households who would probably have attained homeownership at some point in the future, in the absence of the First Home Fund. It has enabled Buyers, often in their twenties, to buy at a younger age than would otherwise have been possible. It has also, as already noted, enabled Buyers to purchase a larger property, or one in a preferred area, than they were initially looking for.
Nonetheless, it is also clear that a significant minority of Buyers had been unable to build up sufficient savings for a deposit. For this group, continuing to save was unlikely to make a material difference in terms of being accepted for a mortgage that would give them the purchasing power to buy a home suitable for their needs. It therefore seems reasonable to conclude this group of Buyers would be very unlikely to have been able to purchase without assistance.
For this minority group of Buyers, the impact of becoming a homeowner has been life changing. For some living in the private rented sector, it has enabled them to move on from living in shared, overcrowded, or other unsuitable housing. Those in their mid-thirties or older, as well as those with children, were particularly likely to emphasise the sense of security, permanence and improved wellbeing that had come with owning a home.
Overall, these findings are perhaps not too surprising. In the absence of income limits or a price ceiling, the First Home Fund was effectively open to all first-time buyers, as opposed to only those struggling to secure the minimum deposit required to secure a mortgage.
Additionality, and the extent to which the First Home Fund has assisted people who would otherwise have been unable to buy a home, may not be the only, or perhaps the best way to judge its success. That said, the study findings at least raise questions about whether the parameters for the First Home Fund might benefit from being tightened.
During the pilot period, the First Home Fund proved to be very popular precisely because it was simpler, more flexible and less formulaic than other shared equity products. This made it a viable option for households in different local housing market contexts as well as for households facing different affordability constraints and with differing housing requirements and preferences.
If the First Home Fund were to operate on a larger scale over a sustained period of time without any additional constraints on the eligibility criteria it could risk putting upward pressure on house prices in different local housing markets. On the other hand, tightening eligibility criterion and other parameters would increase the complexity of the scheme, which would run the risk of reducing consumer interest.
These observations suggest that in moving forward, it will be important to think carefully about the benefits and trade-offs from tightening the parameters of the First Home Fund and how best to set and regularly review these parameters, and in particular eligibility criteria, in response to shifting housing market conditions.