Half-price houses? The First Homes scheme launches

The new First Homes scheme is now being piloted in Bolsover and will be rolled out across England from the end of June. It offers first-time buyers – and key workers especially – the chance to buy locally and affordably. However, some parts of the UK will remain much more affordable than others. Article by Nick Green.

First-time buyers may be able to secure a home for as little as half the market price, thanks to a new government scheme launched last week. The First Homes scheme, details of which were announced last year, offers selected new build properties (both houses and flats) to first-time buyers for between a 30% and 50% discount. Now the first properties available through the scheme have been put on the market in Bolsover, East Midlands, but demand is fierce and most homes are likely to be snapped up very quickly.

The government’s target is to make 1,500 First Homes available by the end of 2021, with a total of 10,000 eventually (over a timescale that is currently unspecified). So some previously frustrated homebuyers will get lucky and gain a foothold on the property ladder – but many will not.

Tim Bannister, director of property data at Rightmove, said, ‘The scheme could help some people bring their plans forward, or buy a bigger home than they were originally expecting to. Eligible buyers will need to get in quick to have the best chance of securing one.’

Can I use the First Homes scheme? Eligibility and rules

To see if you might be eligible for the First Homes scheme, or whether it may be suitable for your needs, here’s a quick guide to the rules.

Rule 1: First time owners only

The scheme is only open to first-time buyers (obviously), and this applies to all who will be registered owners – i.e. a person won’t be eligible if they have ever owned a property in the past. Note that this also applies to inherited or gifted properties (so really the correct term should be ‘first-time owner’ to exclude those who have owned properties without buying them). So if you’ve never owned a property but your co-buyer has, you won’t be eligible for the First Homes scheme. It must literally be your first non-rented home.

Rule 2: Maximum income

There are also limits on your maximum income. The combined income of all buyers can’t exceed £80,000 (or £90,000 in London).

Rule 3: The price cap

The First Homes scheme will only apply to low-to-moderately priced properties across the UK. In practical terms this means a maximum price of £420,000 in London and £250,000 everywhere else. This is to benefit those on more typical incomes (and to prevent opportunists from gaining massive discounts on million-pound homes).

Note that the price cap applies after the discount is applied – so a house that might retail for £500,000 outside London could conceivably be offered for sale at £250,000.

Rule 4: Local connection

One of the hazier rules surrounding the First Homes scheme is the requirement to have some sort of ‘local connection’ with the area where the property. Outlining the reasoning behind this, housing minister Robert Jenrick said, ‘[First Homes] will offer more homes to local people and families, providing a route for first-time buyers to stay in their local areas rather than being forced out due to rising prices.’ He also emphasised the importance of local key workers being able to buy these homes.

However, it’s not yet clear what will qualify as a ‘local connection’. It may be something as simple as having family in the area, or being employed locally, or simply having lived in the area for a number of years. Each Local Authority will be able to set their own test to determine who should be prioritised for the scheme, so criteria may vary from region to region. However, it’s expected that in all areas priority will be given to key workers such as NHS staff, police, firefighters, local retail staff and delivery drivers (to name just a few examples).

Local councils will also be responsible for setting the size of the discount – 30% is the minimum, but it can be increased to 50% at the council’s discretion. So being a key worker will likely be a major factor when it comes to receiving a bigger discount.

Rule 5: ‘Pay it forward’

One of the most crucial rules to bear in mind is the fact that the discount is ‘for keeps’ – all subsequent buyers will receive the same percentage discount, not just the first buyer. This is a sign that the government has perhaps learned from its experiences with ‘right to buy’ council houses – which allowed a few owners to profit at the cost of taking thousands of once-affordable homes out of new buyers’ reach. When a buyer comes to sell their First Homes home, they must pass on the same percentage discount (e.g. 30%) that they themselves received, and the buyer must also be someone who meets the eligibility criteria at the time.

In the event that an owner can’t sell their First Homes property under the restrictions within six months, then the rules may allow for selling it on the open market – subject to an additional fee. That said, given the demand for affordable homes, such a predicament seems very unlikely.

Most first-time buyers won’t be deterred by this rule – a home is a home, after all. However, it’s a point to consider when looking at the longer term. As there is less scope for making such a big profit (both because of the discount and the property price cap), buyers under the First Homes scheme may struggle to climb the housing ladder as quickly. The number of eligible buyers is also smaller, which may further depress the resale price. Therefore the first move to a new home may well be ‘sideways’ – i.e. to a property of similar size, but higher cost – unless the buyer has built up significant extra savings or income in the meantime.

Where are the most affordable First Homes under the scheme?

At the time of writing, the only First Home scheme properties available are in Bolsover, Derbyshire, but the scheme will be rolled out across England from the end of June. The government has asked developers to ring-fence 25 per cent of all new homes built, so – assuming this target is met or approached – most parts of the country should have at least a few of these affordable homes coming on-stream soon.

However, there are already concerns that the scheme won’t go far enough in the highest priced regions such as London. The average home in the capital now costs around £500,000, so even with the maximum 50% discount this means a price tag of £250,000. With the average (median) London wage being a surprisingly low £26,300 this is still a tall order for many buyers. The largest mortgage one can borrow on that salary is around £118,000, meaning one would need a highly unrealistic deposit of £132,000. Buying as a couple is more doable – based on average salaries they could borrow up to £236,000 and would need a minimum deposit of just £14,000. However, this still works out as a 95% mortgage, and these types of mortgages have only just become available again via another government scheme. So key workers buying in London will probably end up needing more than one type of support from the government.

Estate agent Savills has estimated that just 12% of households below the earnings cap could realistically afford a First Homes two-bed property in London (based on a 15% deposit and 4x income mortgage). But in other parts of the UK, the picture they paint is more optimistic. By these same criteria, the most affordable area for First Home properties is the North East, where an estimated 61% of eligible households could afford the scheme. Across the rest of northern England, more than half of households look able to afford such properties, and the figures are only slightly lower in the Midlands and the South West. In Bolsover – where the scheme is being piloted – an estimated 59% of households can afford it. But in the East and South East only around a third of eligible buyers seem to have high enough incomes relative to the property prices.

If you think you may be eligible for the First Homes scheme, you can further increase your chances of affording the right property by consulting a mortgage broker. Your broker can find you the best available deal from the whole of the market, so that you can take full advantage of any potential discounts that may be offered to you.