With the property market heating up as we head into summer, it’s a great time to start looking for a new home to buy. To do this, it is crucial to understand the mortgage options that are available to you, so let’s take a look at the different types of mortgages on offer in Scotland.
Fixed-rate mortgage
The interest rate on a fixed-rate mortgage remains unchanged for the duration of the loan, which is usually two to five years. This is appropriate for you if you want the security of knowing the exact payment amount each month, however it does prevent you from accessing lower interest rates if they fall during your fixed-rate period.
Variable-rate mortgage
A variable-rate mortgage can change at any time depending on the fluctuation of the Bank of England base rate. This means that your monthly payments will fluctuate based on updated interest rates, which can allow you to benefit from falling interest rates. However, it is important to prepare yourself for the potential of an increase in monthly payments if rates go up.
Guarantor mortgage
A guarantor mortgage is an arrangement in which a third party, typically a family member or close relative, agrees to guarantee the mortgage repayments on the borrower's behalf. The lender typically uses this arrangement when the borrower, often a first-time buyer or someone with a limited credit history, does not meet the lender's eligibility criteria.
Essentially, the guarantor pledges their own assets or income as security for the mortgage, assuring the lender that they will receive the repayments in the event of a borrower default.
First-time buyer mortgage schemes
In 2023, the Help to Buy scheme was replaced by the LIFT scheme, a shared equity plan designed to assist individuals in buying their first property in Scotland. The LIFT plan is divided into two very similar sub-schemes, but only the New Supply Shared Equity (NSSE) scheme is accepting new applications currently.
The NSSE scheme allows first-time buyers to purchase a new-build property from a council or housing association. This scheme requires you to cover just 60 to 80% of the property’s cost, while the Scottish government holds the remaining share. You will then have the option to purchase a larger share of your home further down the line, at a rate of 5% per year.
The shared ownership scheme
Through the shared ownership scheme, first-time buyers and individuals on lower incomes can own a portion of a property and rent the remaining amount. Your stake can range from 10% to 75%, and this can be increased in the future if you wish. This scheme offers an affordable way for you to step onto the property ladder and eventually reach full ownership in the future.
Second home mortgages
A second home mortgage is a loan taken out to finance the purchase of a second property that is not your primary residence. You typically need a 25% deposit for a second home mortgage, and you must have enough income to pay off your existing mortgage in addition to this. A 3% Land and Buildings Transaction Tax is applicable to all second homes in Scotland, regardless of their value.
Looking to buy a new home this summer? Contact us today