First Homes Scheme - just what will its effect be?

Together we are Forbes


22 June, 2021

Cathy Lord

The First Homes scheme, launching in June 2021, is a mechanism for selling discounted affordable housing to first-time buyers - it does not apply in Wales or Scotland; and to reserve it for those most in need, it won't apply if the buyers' combined household income is over £80,000, or £90,000 if you live in London.

If a buyer can afford to buy one of the homes with the discount and savings, they will not meet the qualification criteria. Buyers must use a mortgage for at least 50% of the price of the discounted home. These criteria also apply to all future sales of a First Home and restrictions on future sales will show up on the property's title.

Local authorities or neighbourhood planning groups will also have the flexibility to define who can qualify for these homes via the terms of a section 106 agreement for a maximum period of 3 months from when a home is first marketed. For example, some authorities may give priority to key workers or people who pass a 'local connection' test - maybe based on residency, family connections or caring responsibilities. These locally applies conditions will be removed if a home is not reserved after three months of marketing and then national criteria only will apply.

Nationally, the minimum discount to be applied is 30% with a price cap after discount of £250,000 (£420,000 in Greater London) - that price cap applies on the first sale only - however, the same % discount is applied on a future sale - for example, if a buyer bought it for 30% below market value, they will also need to sell it for 30% below what it is now worth with that sale on being to someone (a first-time buyer) who is also on the first-homes scheme.

The idea is that this will help circulate affordable homes amongst the group that need it most. Crucially, that also means there is a risk that if the property value goes down, the sale price could be less than the purchase price with the same % discount still needing to be applied.

Propertymark, which oversees estate agents, said the scheme is a "creative initiative" and one that could "really work" but warned it could send house prices rising even further. Chief executive Nathan Emerson, said: "We have a very busy market right now, full of hungry buyers, and there is a danger that introducing more buyers without increasing supply could further push the supply and demand out of balance, meaning house prices would continue to rise."

Critics have warned that the initiative could undermine the supply of social rented homes as the proposals require developers to set aside a quarter of the affordable housing they are obliged to create as discounted homes to be sold under this scheme.

This could reduce the share of homes given to housing associations to provide social rented options for the poorest families who are unable to buy, some argue. However, in a statement, the government says it "recognises the importance of social rent as part of the affordable housing tenure mix

Blackstock Consulting head of policy Joshua Carson says: "The government's First Home scheme will eat into the provision of affordable rental housing, negatively impacting lowest income households to the benefit of people who would likely be able to afford to buy without a discount.

"Generations of poor decision-making following the introduction of Right to Buy have decimated social housing stock and the First Homes scheme will only compound this problem further.

"There needs to be a wholescale commitment to increase funding for social housing - not cannibalising what small amount of discounted rental and shared ownership housing we are currently delivering by taxing developers

Whilst the full effect of the scheme will only be evident after a considerable period of time, its aim is undoubtedly to help local first time buyers onto the property ladder, particularly key workers such as NHS staff and veterans otherwise unable to remain in high priced areas. 1500 properties are earmarked to become part of this scheme by the end of 2021, with up to 10,000 or more homes a year being delivered in the years ahead subject to demand and with major high street lenders intending to offer high loan - to- value mortgages in support of the scheme, there is every sign that this will be a significant tool in the government's aim of increasing home ownership and its commitment to delivery of 1 million homes by 2024.

For more information contact Cathy Lord in our Housing & Regeneration department via email or phone on 0333 207 1130. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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