In this article, we will take a look at the First Homes Scheme, a Government initiative introduced to help first time buyers to purchase a home with a considerable discount on the purchase price. Under Local Authority discretion, the scheme will also be extended to key workers and current serving members (and veterans) of the Armed Forces too.
What is the First Homes Scheme?
The First Homes scheme was first implemented in June 2021, the outline of which was revealed by the Prime Minister, Boris Johnson in 2020 as part of a broader affordable housing plan. The scheme forms part of the government’s wider pledge to make one million new affordable homes by 2024 in a bid to help more first time buyers onto the property ladder.
Properties offered under the scheme are newly built houses and flats which will be available for at least 30 per cent less than market value. The First Homes Written Ministerial Statement gives local authorities the discretion to implement a higher minimum discount of either 40% or 50%, providing evidence can provided for the need for this. On its website, the Government has issued guidance for the purchase of homes under the First Homes scheme. The guidance states that 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).
Who is eligible?
The scheme is only available in England and to first time buyers. Anyone with a combined household income over £80,000 (or £90,000 for those living in London) is not eligible as the scheme is aimed at those on lower incomes. As buyers must use a mortgage for at least 50% of the price of their home, anyone able to afford a home without a mortgage is not eligible.
The First Homes Scheme follows the launch earlier in 2021 of the 95% mortgage guarantee scheme which looks to increase the availability of mortgages for people under the scheme, needing just a 5% deposit. According to an article by Zoopla, major lenders such as Halifax and Nationwide have agreed to provide 95% mortgages on properties purchased under the First Homes scheme.
The Ministry of Housing, Communities and Local Government have produced a guide to the First Homes scheme in which they state that homes will be offered under the scheme to people with connections to the area in which they wish to purchase. This enables buyers to remain in the area in which they live and work but might have previously been forced to move from by the prohibitively high cost of homes. It is not initially clear what constitutes a local connection. It could simply be that a buyer works in the area or has family established in the area.
Local councils can set their own further conditions as to the eligibility criteria, for example by extending the offer to key workers (teachers, health care, police etc). First time buyers who are current serving members or veterans of the Armed Forces (as long as they apply within five years of leaving service) will also be eligible under some local council policies too. The scheme goes as far as to be open to divorced, separated or widowed spouses of members of the Armed Forces too.
Local councils will also have the authority to set the amount of discount offered in their area. This could see buyers in some areas being offered a discount of up to 50%.
I’m eligible. When can I purchase a property under the scheme?
A pilot scheme was launched in June this year in Bolsover, Derbyshire with 12 homes for sale under the scheme. Following the success of the pilot, time now needs to be given for further homes to be built with a Government target of at least 10,000 homes a year in the future, according to this article by Rightmove.
The article goes on to say that the first 1500 homes will become available from Autumn 2021 with the roll-out gathering pace into 2022.
Where can I buy a property under the First Homes scheme?
There is not currently a specific website to view homes or reserve homes under the First Homes scheme – it falls to a buyer to research which developers in their area will be offering properties as part of the First Homes scheme and approach the property developer themselves to make an enquiry. Buyers should remember that properties will be limited in availability and 5% of the discounted purchase price will be required as a deposit.
What happens when I want to sell my property?
Any buyer purchasing a property under the First Homes Scheme will have 100% ownership. However, in the same way that rules applied to buying the First Homes Scheme home, there are rules that apply when selling it too. The same discount that was offered to the first buyer will be passed on to the new purchaser, who must also be buying for the first time and meet the eligibility criteria. This rolldown of discounted purchase prices ensures that new buyers will be able to get onto the property ladder for generations to come and homes will be available in each community for below market value. This requirement to pass on the discount will form a restriction on the title of the property which clearly identifies it as a First Home which cannot be sold without the discount being applied.
For clarity an example is provided below:
- A first time buyer chooses to purchase a property under the First Homes Scheme with a market value of £250,000.
- The First Homes discount of 30% is applied meaning a purchase price of £175,000.
- When the buyer decides to sell in a few years, the property is valued at £300,000.
- The new buyer will pay a purchase price of £210,000 (£300,000 asking price less 30% discount).
Further comprehensive information can be found on the Government website on their First Homes scheme page.