First Homes are the Government’s latest innovation aimed at enabling more first time buyers to continue the UK’s long-held tradition of home-ownership.
As has been widely publicised, homes are to be discounted by a minimum of 30% of market value and represent the newest form of affordable housing.
First Homes should account for at least 25% of the affordable housing provided as part of developments and are to be secured in perpetuity. Clauses can however be included in legal agreements to allow developers or First Home owners to sell properties on the open market as long as certain conditions – including marketing of the property for at least six months and compensating the local authority for the loss of the affordable home - are met.
First time buyers with a combined annual household income not exceeding £80,000 (or £90,000 in London) and a mortgage covering at least 50% of the discounted purchase price are eligible to purchase a First Home.
Additional eligibility requirements can be implemented by local planning authorities, subject to demonstration of need. However, any local eligibility criteria will apply for a maximum of three months from when a home is first marketed.
So, what will the impact of the new requirement be?
First Homes offer the opportunity for more first time buyers to achieve their goal of getting onto the property ladder. In areas where first time buyers are priced out of the market, First Homes could put home ownership within reach.
Of course, a 30% discount may not be sufficient to put home ownership within reach of first time buyers in the most expensive areas and so greater discount may be necessary to bring the sale price within reach (and under the £250,000 price cap (£420,000 in London)). Such greater discount could, subject to demonstration of need, be imposed by local authorities, as could a lower price cap (again, subject to demonstration of need).
Alternatively, developers may choose to offer new smaller house types which have sale prices below the cap.
For developers, if not properly considered, providing First Homes has the potential to undermine scheme viability. This could potentially risk the ability to deliver other affordable tenures, most notably affordable rented.
Transitional arrangements are in place meaning that well advanced schemes will likely not need to provide First Homes. Given this, it may be some time before First Homes are delivered in any number.
Even then, it remains to be seen whether there will be interest in this new form of affordable housing. While offering clear benefits to the first time buyer in terms of initial outlay, the continued capping of sale prices at 30% of the market value could put off buyers nervous about their future ability to move home.
So, with that in mind, will First Homes truly enable more first time buyers to climb onto the property ladder or will it divert funding from much-needed affordable rental options without providing any real addition to the stock of affordable homes?
Read and share our our overview of First Homes' new principles.
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