The “First Homes” scheme launches – what it is and how it could help you

Man signing mortgage agreement

If you’re a first-time buyer looking to get onto the property ladder, then a new government initiative could help you.

The “First Homes” scheme launched in England in June with the government saying that the discount scheme will “provide a route for first-time buyers to stay in their local areas, rather than being forced out due to rising prices”.

So, how does the scheme work, and how could it help you? Read on for answers to these questions and more.

How the First Homes scheme works

The First Homes scheme is part of ongoing government plans to help more people to get onto the property ladder.

Housing secretary Robert Jenrick MP said: “Enabling more people to buy their own homes is at the heart of the mission of this government, and First Homes will offer a realistic and affordable route into home ownership for even more people who want to own their own home”.

If you’re a first-time buyer, the scheme enables you to buy a new-build home at a discount of 30% on market value. Once the discount has been applied, the maximum price a home can be sold for will be capped at £250,000, or £420,000 in London.

The eligibility criteria are:

  • You need to be a first-time buyer
  • Your household earnings must be below £80,000 (or £90,000 in London)
  • You need to take out a mortgage of at least 50% of the property’s value.

While the minimum discount you’ll benefit from is 30%, local authorities and neighbourhood planning groups do have the discretion to insist on a higher minimum discount of either 40% or 50% if they can demonstrate a need for this.

A range of banks and building societies have already committed to offering high loan-to-value mortgages on homes sold under the scheme.

Lenders who have signed up so far include Halifax and Nationwide as well as a few regional building societies including the Chorley Building Society, Darlington Building Society, Leeds Building Society, Mansfield Building Society, and Newcastle Building Society.

David Postings, chief executive officer of UK Finance, added: “Key workers have kept the country running during the pandemic and we are committed to doing what we can to help them, and other local first-time buyers across England, to realise their dreams of owning their own homes”.

The scheme is aimed at key workers looking to get their first foot on the ladder. As well as the 30% discount, councils can also add additional criteria for the first three months a home is on sale.

For example, they could limit applications to key workers or local people. If a property is still available after the three-month period, anyone who meets the scheme’s main criteria can then apply.

A limited number of homes will be available

The scheme launched in the East Midlands in June, and the government says further sites will be launched in the next few weeks. It anticipates 1,500 First Homes becoming available by the end of 2021, and at least 10,000 a year thereafter.

Note that there is no dedicated website or portal where you can apply for a First Home. This means you’ll have to do your own research to establish which developers are taking part. Once you find a development offering discounted homes under the scheme, apply directly to the developer to reserve a property.

Some experts have expressed concerns that there simply won’t be sufficient properties available under the scheme to support first-time buyers. Which? reports that around 300,000 people bought their first home in 2020, so a choice of just 10,000 homes a year is unlikely to be enough.

Tim Bannister of Rightmove says: “There’s likely to be a scramble for properties under this scheme as they become available, especially as we’ve already seen an influx of first-time buyers enter the market recently.

“Based on current available stock levels it’s unlikely there will be enough of these properties to satisfy the high levels of demand”.

What happens if I sell a First Home?

The government intends that any property sold under the First Homes scheme will remain part of it for the long term.

This means that, when you buy a property using the scheme, a restriction will be added to its entry on the Land Registry. This ensures the property remains part of the scheme when you come to sell it in the future.

This restriction means you will have to sell your First Home to an eligible first-time buyer. You’ll also have to sell it with the same percentage discount you benefited from when you bought it, regardless of whether the property has gone up or down in value.

So, if you benefit from a 30% discount against market value when you buy the home, you will have to sell it at a 30% discount in the future.

Get in touch

If you want to buy a First Home and you need a mortgage, please get in touch. Email enquire@london-money.co.uk or call 0207 808 4120 to find out more.