First Homes is a new scheme, which came into effect on the 28th June 2021, that has been introduced by the government to help first time home buyers onto the property ladder. The scheme requires councils to provide a new form of discounted housing for first-time buyers (and key workers). Thus, First Homes can be viewed as a type of affordable housing.
To qualify as a First Home, a property will need to be sold with a minimum discount of 30 per cent against the market value. However local authorities and neighbourhood planning groups can increase this discount to 40% or 50% if they can prove that there is a need for this. Once the discount has been applied, the first sale of the property must not be higher than £250,000, or £420,000 in Greater London.
The discount that is applied to First Homes will be passed onto all future purchasers of the property, meaning First Homes will always be sold below the market price. For example, if you buy a house through First Homes with a 40% discount, the house has to be re-sold with a 40% discount. Therefore, if the house was bought for £120,000 but it is worth £200,000, when it is re-sold for £240,000, the capital gain for the homeowner will not be £40,000 but £24,000 instead. With a lower capital gain, it will be difficult for homebuyers to progress up the property ladder. Furthermore, local authorities can restrict who can buy these homes and who they can be sold to, which is not only first buyers but certain key groups only too (e.g. teachers or nurses). As only a limited group of people can buy these properties, the difficulty of reselling is further heightened, and it is unlikely that these properties will increase in price.
Under the scheme, First Homes must account for at least 25% of affordable housing sold by developers. This is supported via a Section 106 agreement/planning obligation, a legal agreement between developers and local planning authorities to reduce the impacts of a development proposal. However, this could lead to negative impacts on the housing market.
How will the scheme affect other forms of affordable housing including shared ownership?
When a home is bought through the shared ownership scheme, it means a share of the property is bought and rent is paid on the rest. As First Homes must account for 25% of affordable housing sold by developers, a decrease will be seen in other types of affordable housing, including shared ownership. A reduction in affordable rented properties will have negative impacts on those who it does not suit to buy a house. Furthermore, the scheme is only applicable to new builds, which can have a premium price, consequently meaning the discount of First Homes may not have that big an impact. Therefore, it can be asked, will this new affordable housing scheme push out genuinely affordable housing options.
At Planning & Design we work with developers of all sizes, from small companies working on one property at a time to large housebuilders and commercial organisations where multi-million pound schemes are the norm. We have established a strong reputation for providing honest and sound commercial advice, skilled presentation, advocacy and negotiation. For more information, or to discuss how we could help with a specific project or property please don’t hesitate to get in touch.