The First Homes Scheme is a government initiative that gives buyers up to 50% off new-build properties. But what does it mean for developers?

The First Homes Scheme 2021

A recently launched government scheme aims to make life easier to enable first time buyers to purchase a discounted new build property, provided they meet certain criteria. The discount applied on the first sale is to last in perpetuity so that the future owners will also benefit in the discounted value.

A First Home is a type of discounted market sale housing to meet the definition of ‘affordable housing’ for planning purposes and will be secured by a relevant S.106 Agreement in place for the development.

There are five main points developers need to consider with the First Homes Scheme:

  • The minimum discount.
  • The eligibility criteria.
  • The legal restriction on title.
  • The price cap.
  • Planning considerations and the S.106 Agreement.

Five main points

1. The minimum discount

In order to qualify as a First Home, the new property must be sold at least 30% below the ‘Open Market Value’. Although local authorities will be given the discretion to require a higher minimum discount of 40% or 50%, they must be able to demonstrate a need to increase the discount. If a local authority did opt for a higher minimum discount they would need to take into consideration such things as the need for specific housing types, demographic data, circumstances and how to meet the needs for different social groups and price pressures in the region.


2.  The price cap

The maximum initial price of a property within the First Homes scheme – applicable to the first sale only – is £250,000 outside London and £420,000 within Greater London, after the discount is applied. Local authorities can have discretion to set lower price caps only if they can demonstrate a need to and cannot set price caps higher than the national limits. The price caps are intended to provide appropriate first time buyer properties in any given area and it should not be used to deliver more expensive properties than are necessary.

3. The legal restriction on title

When a First Home is sold for the first time by the developer to the first home buyer, First Homes status should be registered on the property’s title register at HM Land Registry. This ensures that the discount will be passed on from the first to subsequent owners. When a sale to a subsequent has been agreed, the local authority must confirm to HM Land Registry that all First Homes eligibility criteria have been met and the discount has been applied before the transfer of ownership can take place. The discount is defined as a percentage of the property’s market value at any one time.

The implications of this will be the title cannot be transferred to another owner unless the local authority certifies to HM Land Registry that the criteria has been met and if so, the local authority will provide the relevant Certificate of Compliance to satisfy the restriction.

As well as the legal restriction, there will also be provisions within the plot transfer which includes wording from the S.106 Agreement for the development. This will mean the discount is tied to the property and not the buyer – so when the latter eventually sell up and move, the subsequent purchaser will also receive the same discount, albeit on the value of the property at that stage. As with other properties, that value will be determined independently by estate agents and surveyors.

It is also important to note that the plot transfers will include wording to restrict the home owner from using the property other than as their primary dwelling, subject to sub-letting requirements set out by the local authority.

To ensure that mortgagees are not bound by the requirement to sell the property under the First Homes criteria in the event that they have to enforce their security, there will be a Mortgagee Exclusion Clause within the S.106 Agreement and also in the plot transfer.


4. The Eligibility criteria

To qualify for the First Homes Scheme, the purchasers should be:

  • Aged 18 or over.
  • First time buyers (as defined in paragraph 6 Schedule 6ZA of Finance Act 2003 for purposes of SDLT relief for first time buyers).
  • Resident in England.
  • Have a combined household income of no more than £80,000 (£90,000 for London residents).
  • Able to obtain a mortgage for at least half the value of the property. There are no restrictions on the mortgage products available to First Homes buyers.

As part of the S.106 Agreement, local authorities can choose to apply their own criteria in addition to the national criteria listed above. Local authorities could choose to prioritise certain groups and this could include:

  • Officially designated key workers – for example nurses, teachers, police officers or anyone who works in a profession that is key for functioning in the industry for the local area.
  • Local residents – that includes local connections such as family, current residence and employment.
  • People on low incomes – although income caps should not be set at a level that would prevent a borrower obtain 95% LTV mortgage.

Local authorities should be mindful of being too restrictive with their own criteria to ensure the properties do not become too hard to sell.

Separate rules apply to members of the armed forces and their families. Local authorities must include them in First Home allocations, as long as they meet one of the following criteria;

  • They are currently serving.
  • They are veterans who left the Armed Forces no longer than five years previously.
  • They are the widow or widower of a deceased member of the Armed Forces, whose death was caused wholly or partly by their service.
  • They are the divorced spouse of a member of the Armed Forces, or a separated partner of one.

Note, however, that the basic eligibility criteria still apply.

5. First Homes scheme 2021 planning considerations

From a planning perspective, First Homes are a type of affordable housing: a proportion of new build properties which, under planning legislation, must be set aside for buyers on lower incomes. The scheme is now the government’s preferred method for delivering affordable homes. Under the First Homes scheme, developers are required to deliver at least 25% of the affordable housing stock under the scheme. In order to do so, these properties must meet the criteria discussed above.

Under paragraph 62 of the National Planning Policy Framework, in most cases affordable housing must be provided on site and not in a separate location to the other properties within a development, in order to help create balanced communities. Off-site provision of affordable housing stock and/or payments in lieu are not normally permitted and developers must make a firm case for these. However, if such an agreement is reached, at least 25% of the payment, off-site housing or a mixture of both must be dedicated to the First Homes scheme.

Under section 106 of the Town and Country Planning Act 1990, owners of land under development are obliged to enter an enforceable ‘planning obligation’ stating that they will:

  • Set aside a certain number of qualifying properties for the First Homes scheme.
  • Ensure that legal restrictions are placed on the available selling price of the property to ensure the discount remains available to subsequent buyers.

This should normally be done before applying for planning permission.

First homes scheme exception sites

So-called exception sites are housing development sites that are primarily dedicated to the First Homes scheme despite falling outside local affordable housing plans.

Such sites must be on otherwise unallocated land, but cannot be:

  • In designated Green Belt zones.
  • Within the Broads Authority of Norfolk and Suffolk.
  • In designated rural areas as defined by the National Policy Framework.

The size of a proposed exception site will be dependent on local conditions. Local authorities and other planning bodies will normally have clear policies on the proportionality of proposed exception sites and the evidence that will be required to demonstrate this.

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