The First Home Scheme and Mortgage Protection

10-second summary: If you’re buying using the First Home Scheme, your bank will still require mortgage protection — but the scheme itself doesn’t. That matters, because mortgage protection clears the mortgage, not the First Home Scheme’s equity share.

The First Home Scheme does not require its own mortgage protection policy or any life insurance assigned to it.

Your bank, however, still requires mortgage protection in the normal way. That policy is assigned to the lender only, exactly as it would be for any standard mortgage.

Despite how often people ask, there is no such thing as “First Home Scheme mortgage protection”.

Why this distinction matters

Mortgage protection exists to clear debt – in other words, the money you’ve borrowed from the bank.

The First Home Scheme isn’t debt. It’s equity – a  share of your home.

That single difference is where most of the confusion comes from.

Insurance is very good at clearing loans but it doesn’t automatically remove another party’s ownership stake in your property.

What happens if a single buyer dies?

This is the scenario most people don’t really think through.

If a single buyer using the First Home Scheme dies, this is what actually happens:

1. The mortgage protection policy pays out and clears the bank mortgage.
2. The property passes to the estate in the usual way.
3. The First Home Scheme’s equity share remains attached to the property.

Put simply: the mortgage dies, but the First Home Scheme lives on.

What position does that leave the estate in?

The estate (or beneficiary) inherits the property subject to the First Home Scheme’s equity share.

The property can be kept or sold. If it’s sold, the First Home Scheme must be repaid from the sale proceeds. If the intention is to keep the home outright, that equity share will need to be bought out at market value at some point.

None of this is hidden — it’s just rarely thought about when people are focused on getting approved and getting the keys.

What happens if one partner dies?

The mechanics are similar, but the outcome can feel very different.

If one partner dies while buying with the First Home Scheme:

1. The mortgage protection policy pays out and clears the bank mortgage (assuming it’s set up correctly).
2. The surviving partner remains living in the home.
3. The First Home Scheme’s equity share still remains attached to the property.

So again, the mortgage is gone — but the scheme doesn’t disappear.

For couples, the difference is usually practical rather than technical. There’s still a household, still an income, and often more flexibility around when or whether the First Home Scheme equity is bought out.

But the underlying point is the same: mortgage protection clears the loan, not the shared ownership.

Where life insurance can matter

This is where separate life insurance, rather than mortgage protection, can quietly make a big difference.

Life insurance is paid to the estate or a named beneficiary. It isn’t assigned to the bank and it doesn’t disappear clearing a loan.

That money can be used however it’s needed — including buying out the First Home Scheme equity or avoiding a forced sale at the wrong time.

It isn’t a requirement. But where shared equity is involved, it can turn a neat technical solution into something that actually works in real life.

The most common mistake

We often hear some version of:

“Once the mortgage is cleared, the house is sorted.”

With shared equity, that’s not always true.

The problem usually isn’t breaking a rule. It’s misunderstanding what the rules actually do — and don’t do.

What to do before you draw down

Before contracts are signed, it’s worth pausing to check a few things:

• that your mortgage protection is set up properly,
• whether separate life insurance makes sense for your situation,
• and what position illness or death would realistically leave your estate in.

This doesn’t have to be expensive or complicated. It just needs to be done in the right order.

Next step

If you’re buying using the First Home Scheme and want to be confident your protection does what you think it does, the safest time to review it is before drawdown — not after contracts are signed.