The First Homes scheme is the latest government initiative designed to help first-time buyers and key workers onto the housing ladder.
The homes – a discounted market sale affordable housing product – are said to be the government’s preferred discounted market tenure and should “account for at least 25 per cent of all affordable housing units delivered by developers through planning obligations”.
This article gives a brief overview of the new scheme and the likely impact on section 106 schemes for registered providers.
What are First Homes?
First Homes are new build market sale units, discounted by at least 30 per cent compared to market value. The First Homes Written Ministerial Statement gives local authorities the power to require a higher discount of 40 per cent or 50 per cent if they can demonstrate need.
After the percentage discount has been applied, the units must be sold for no more than £250,000, or £420,000 in Greater London. Again, where need is demonstrated, local authorities have the discretion to set lower price caps.
First Homes must be subject to a Section 106 planning agreement, to secure the necessary restrictions on use and sale of the property. First Homes must be physically indistinguishable from the equivalent market homes in terms of quality and size.
How will open market value be established?
Housebuilders will be required to obtain a valuation from a registered valuer acting independently and in accordance with the Royal Institution of Chartered Surveyors (RICS) red-book valuation guidance for eligible new-build homes. On re-sales the seller of the property should secure a valuation in the same way and in accordance with RICS’s guidance.
Who can apply for a First Home?
Purchasers applying for a First Home must meet the government’s eligibility criteria. In short the purchaser:
- must be a first time buyer;
- (whether an individual, couple or group) must have a household income of no more than £80,000, or £90,000 in Greater London; and
- must be reliant on mortgage funding to fund a minimum of 50% of the discounted purchase price.
Will local people be given priority?
Not as standard, but local authorities can apply their own eligibility criteria in addition to the national criteria summarised above. For example, the local authority can apply a local connection test, or criteria based on employment status. Local authorities can also choose to prioritise key workers, especially if they have an identified local need for certain professions.
However, any local connection criteria must be applied for a maximum of three months from first marketing of the property. If a purchaser is not found within three months, the eligibility criteria for that property must revert to the national criteria.
How will purchasers apply for a First Home?
There is no central application portal; purchasers will apply directly to participating housebuilders.
In August 2021 the government unveiled a pot of £150 million to support the roll-out of several pilot First Homes schemes. When inviting housebuilders to bid for a share of the £150 million package, the government confirmed its intention that the money will be used to deliver 1,500 First Homes by March 2023.
What happens when First Homes owners come to sell?
The discount at which the First Home was bought must be ‘passed forward’ to all future buyers of the property. To secure this and identify the property as a First Home, there will be detailed binding obligations contained in a Section 106 planning agreement. In addition, a title restriction will be entered, prohibiting future dispositions (excluding a charge) without a certificate from the local authority confirming that the First Homes provision in the original transfer deed has been complied with.
What will be the likely impact for registered providers?
It is too early to tell. However, registered providers will be concerned there is a competing market for s106 housing schemes. The priority the government is giving to First Homes will undoubtedly have a material impact on the number of s106 schemes made available by housebuilders to registered providers.
As the number of units made available decreases, this will have an additional impact on the tenures that registered providers are able to offer to their customers. More than ever, there will be competing interests between shared ownership and social rental units.
Finally, First Homes is likely to eat into the shared ownership market as customers compare and contrast the eligibility criteria for each scheme. However, this might be offset by the recent reduction in the starting equity share [reduced from 25% to 10%] which will, hopefully, make the entry level Shared Ownership available to more customers.