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The government’s First Homes Scheme offering first time buyers up to 50% off new-build homes

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On 4th June 2021, the Government launched the First Home Scheme. An initiative announced by the government to access affordable housing for first time buyers in England. With the average asking price for properties currently on the market for first-time buyers £205,925, according to the property website Rightmove, this could mean discounts of £100,000 or more.

Robert Jenrick, the Housing Secretary hopes that the new scheme will stop people from being priced out of areas. The scheme will therefore help local people who struggle to afford prices in their areas but want to stay in the communities where they live and work according to the Housing Ministry.

A trial begun on 4th June 2021 in Shirebrook, near Bolsover, Derbyshire and the first 12 homes came on the market at 30% under the market rate. After which the scheme will roll out across the rest of England on 28th June 2021.  

How does the scheme work?

  • New build homes will be offered to First Time Buyers in England at a discount of 30% on the market value.
  • Local authorities may be able to increase this discount to 40% or 50% “if they can demonstrate a need for this.” 
  • First Home properties will be capped at £250,000 or £420,000 if you live in London. And the cap may be lower if your local authority chooses to lower it. This means that after the discount is applied the property cannot cost more than £420,000 in London (or £250,000 in the rest of England). 
  • Local authorities will be able to impose their own criteria such as prioritising key workers such as NHS staff.
  • To buy one of the homes within the first three months of it going on sale, buyers must prove local connection. For example, the local authority may give key workers or people who pass the ‘local connection’ test priority. The test includes current residency, employment requirements, family connections, special circumstances such as caring responsibilities. 
  • The Council can add additional criteria for the first three months a home is on sale – for example by limiting 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 apply. After three months of the house going on sale extra conditions set by the local authority will be removed for any First Homes which have not been sold or reserved.

Who can apply?

  • First time buyers in England; the scheme does not apply to Wales and Scotland. 
  • Those who have a combined income of less than £80,000 and live in London. Those outside London will be able to benefit as the scheme is rolled out across England later this month. 
  • The buyers will need to take out a mortgage of at least 50% of the property’s value. You will not qualify if you can afford to buy the house with the discount and your savings. 
  • The government says major banks and building societies have committed to offering high loan-to-value mortgages on homes sold under the scheme. The following lenders have signed up so far: Chorley Building Society, Darlington Building Society, Halifax, Leeds Building Society, Mansfield Building Society, Nationwide and Newcastle Building Society.
  • First Homes are available to anyone who meets the above criteria, but local councils will have the option to prioritise specific groups of buyers.

What happens when I sell? 

When selling a First Home property the property must be sold to someone who is also on the First Homes scheme and with the same discount (you benefitted from) regardless of whether the property has gone up or down in value. For instance, if you bought a new build with 30% discount you will have sell it to an eligible first-time buyer for 30% off what it is worth. So, if the prices go down you will end up selling it for less than what you bought it for. Essentially, this means that when you sell you will probably not make huge gains. 

When you buy a First Home, a restriction will be entered onto the office copy entry on the Land Registry. This will maintain that the property remains part of the scheme even when it is resold in the future. However, this is reflective of the very purpose of the scheme which is to keep the supply of affordable housing circulating to meet the demand in England and by keeping the profitability element out will make sure that the prices of affordable houses are controlled and kept affordable.

Is the scheme a good idea for first-time buyers?

The scheme is indeed an attractive one to first time buyers especially those with low income who are struggling to get on the property ladder. However, will the supply meet demand for affordable housing?

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.”

Which.co.uk reported that in 2020 around 300,000 buyers bought their first homes, compare this with the 10,000 new homes available each year under the scheme which is like a drop in the ocean.  With First Homes being capped, the money may buy a flat, but will not stretch to a family-sized home in the more expensive areas of the counties. Moreover, the capped prices may force developers to build much smaller units for those homes under the First Homes banner, reported Which. 

It also comes with a caveat, buyers may struggle to buy in the future, outside of the scheme and the risk of 30% of the property value upon selling in future. In addition, buyers using the scheme may struggle to progress buying a home outside of it in the future. The discount might enable you to buy a home now but losing 30% of the property’s value when you sell, may leave you struggling to progress up the ladder.

The scheme, however, will be more affordable to people in the outer London boroughs where house prices are lower than inner London. However, in my opinion, it is a positive initiative and may be more successful if developed at a larger scale.

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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