She must have held an interest if she was able to mortgage it. The price is irrelevant for this relief, but may be relevant for the additional (3%) rate.
This isn't true:
you can ask us about applying for a joint-borrower, sole-proprietor mortgage. This means that you can apply with someone who’s willing to accept joint responsibility for making mortgage payments without having a legal claim to the property.
Also - perhaps more relevant as this was a constructive trust (which appears likely to be the case for the OP too)
Mr Tahir purchased the Property on 24 November 2006 in his own name for a purchase price of £219,000, funded principally by the Mortgage in a principal amount of £208,265. Mr Tahir was registered as the legal owner of the Property on 27 December 2006 and has been the registered legal owner at all relevant times since then. The Mortgage requires repayment during the mortgage term only of interest, with principal to be repaid at the end of the term. In other words, it is an "interest-only mortgage".
i) declared that:
a) Mr Faiz Ul Hassan Faizi, the respondent, is entitled to a one hundred per cent beneficial interest in the residential property at 3 Sutton Gardens, Luton, LU3 3AF ("the Property");
b) the legal title to the Property, currently held by Mr Tahir, is held by him in trust for Mr Faizi; and
I haven't looked at the legislation for first time buyer relief but this suggests that it's beneficial interest, not legal interest that is important:
Where an individual has absolute beneficial ownership of an interest in land but legal ownership is held by another person (as in a bare trust or nominee arrangement) the individual with beneficial ownership is treated for the purposes of Condition C as owning that interest [Para 3 Sch 16 FA 2003 and para 11(2) and (3) Sch 4ZA FA 2003]. This also applies where the beneficiary of the trust would be absolutely entitled but for being underage, or disabled, in a way that prevents them from being legally capable of owning property.