The First Homes scheme involves the building of new homes specifically to be sold at a discount. However, these homes are otherwise intended to be of similar specification to full-price homes. These homes will then be put on the market at a discount of at least 30%. For an average new-build property in England, this will equate to a saving of around £100,000.
- What is a first home?
- What are the eligibility criteria?
- Can the minimum discount be changed?
- Who is eligible to purchase a First Home?
- How do I apply?
- What happens if I want to sell my First Home?
- What impact could the First Homes scheme have on the housing market?
- Will the scheme impact my ability to get a first-time buyer mortgage?
What is a first home?
First homes are a specific kind of discounted market sale housing and should be considered to meet the definition of affordable housing for planning purposes.
First homes are the government’s preferred discounted market tenure and should account for at least 25% of all affordable housing units delivered by developers through planning obligations.
What are the eligibility criteria?
The minimum criteria which a housing unit must meet to qualify are as follows:
- A First Home must be discounted by a minimum of 30% against the market value;
- The home must be sold to a person or persons meeting the First Homes eligibility criteria
- After the discount has been applied, the first sale must be at a price no higher than £250,000 (or £420,000 in Greater London).
- There should be a section 106 agreement securing the necessary restrictions on the use and sale of the property.
* Section 106 is a legal agreement between an applicant seeking planning permission and the local planning authority, which is used to mitigate the impact of your new home on the local community and infrastructure.
Can the minimum discount be changed?
In order to qualify as a first home, a property must be sold at least 30% below the open market value. Therefore, the required minimum discount cannot be below 30%. However, this discount can be increased by local councils up to 50%, such as in areas where property prices are very high.
Additionally, in order to qualify as a First Home, the initial sale of the home cannot be at a price greater than £250,000 (or £420,000 in Greater London) after the discount has been applied. Therefore, local authorities cannot set price caps higher than these national caps. However, local authorities and neighbourhood planning groups have the discretion to set lower price caps if they can demonstrate a need for this.
Who is eligible to purchase a First Home?
A purchaser of a First Home should be a first-time buyer for the purposes of Stamp Duty Relief for first-time buyers. Purchasers of First Homes, whether individuals, couples or group purchasers, should have a combined annual household income not exceeding £80,000 (or £90,000 in Greater London) in the tax year immediately preceding the year of purchase.
The purchaser of a First Home should have a mortgage or home purchase plan to fund a minimum of 50% of the discounted purchase price.
How do I apply?
There is currently no national website or portal which you can use to apply for a First Home. Instead, you will need to do your research and see which developers are taking part in the scheme.
If you can find a housing development being built near you that is offering discounted First Homes, you will need to apply for a home directly through the developer. There is no deadline to apply for a First Home, it is open wherever plots are available.
What happens if I want to sell my First Home?
Properties that have been bought under the scheme will have to be sold to first-time buyers who are also eligible for the help. This will ensure that there are enough homes available under the scheme to help first-time buyers purchase a property.
This also means that you will need to sell it with the same discount you bought it for. For example, if you bought it for 30% off market value, you would need to sell it for 30% off what it is now worth. However, if your house was to depreciate in value, you could end up selling it for less than what you bought it for.
What impact could the First Homes scheme have on the housing market?
This is an interesting one – although the scheme is likely to get more people on to the property ladder, there’s also uncertainty over the impact which the discount will have on the property market.
Some analysts are concerned over the effect which this could have on the housing supply-demand balance. They fear that increasing the demand for an already aggressive market, whilst keeping supply the same, could result in the house prices rocketing at an even quicker rate.
However, there is also a possibility that the scheme will lower house prices in the long run; more first-time buyers will be able to buy homes at a cheaper rate, meaning that this could cause a knock-on effect on the rest of the housing ladder.
Will the scheme impact my ability to get a first-time buyer mortgage?
Due to the fact the scheme will require first-time buyers to purchase their property with a mortgage that covers at least half of the purchase price, the mortgage requirement will be lower.
However, the government is also aware that the market for lending on discount market homes is small, partly due to the limited number of homes available. Before, people have needed fairly high deposits, or have been charged higher interest rates on mortgages, for these types of homes. The government has said it will improve the availability and competitiveness of mortgage finance under this scheme. Part of this includes adding a mortgage protection clause to provide assurance to lenders, including a waiver on the discount if a property is repossessed.
If you have any questions about the content in this article, please contact your usual Partner or Manager, or call us on 01942 242 245, and we will be happy to help.