What are ‘First Homes’ and will the scheme work?

first homes scheme

Paul Walton, director of PWA Planning, looks at the recently announced First Homes scheme and what the wider implications could be if it is introduced.

The government has described its First Homes scheme as ‘genuinely life-changing for people all over the country’ – but many aspects of the initiative are unclear.

The proposals are out for consultation until April 3, after which we should start to get a better picture of the detail and viability of the scheme.

It was unveiled during the election campaign when the Conservatives said a discount would apply to some 19,000 first-time buyer homes by the mid-2020s.

Concerns about the affordability of homes

The scheme would enable successful applicants to get a 30 per cent reduction in the cost of new-build homes and is aimed at first-time buyers and in particular, former military personnel and ‘key workers’ including nurses, police officers and firefighters.

However, a study from the charity Shelter suggests that in most English regions, anyone earning the average salary or less would not be able to afford a new-build home under the scheme. In addition, the Shelter research indicates 63 per cent of private renters in England have not saved at all for a home-purchase deposit.

According to Shelter, the average price of a new-build homes in England is almost £315,000. A 30 per cent discount would mean a price reduction of £94,000 – a significant saving, yet one that would still leave first time buyers needing to find a hefty deposit.

Clarity needed on how the scheme is managed

There are also question marks over how the scheme will be administered. Unlike other forms of affordable home, it is not intended that the scheme would involve housing associations (registered providers) as might be the case with most other affordable homes.

The 30 per cent discount will apparently be accomplished by placing restrictive covenants on the homes, requiring the property to be sold at the original percentage discount every time it is re-sold.

Moreover, the government says it is “minded to leave administration to local authorities” and the 31-page consultation document makes no reference to the involvement of estate agencies. It goes on to say that the scheme would see properties ‘independently valued’ on both the initial sale and on all later re-sales.

Another suggestion in the document is that there should be either a national or regional cap on the values of properties in the scheme.

Doubts about the viability of property improvement

Homeowners would be allowed to upgrade their properties although the consultation document warns of the need to “be aware that homeowners may not realise the full value uplift of these improvements due to the need to sell the home at a discount”.

The rules would prohibit buying properties as investments as well as using them for buy-to-let purposes. Owners would, however, be allowed to let their property for a maximum period of two years without needing permission from the local authority.

The government is also canvassing opinion on how to fund the scheme. Ministers say it could form part of developers’ section 106 affordable housing requirements, through relaxed planning laws, or a community infrastructure levy charge to developers.

Longer term issues around discount variations

A major challenge is the possibility of different discounts across the country and within various local authority areas, and how the discounted prices would change over time. For example, if you bought a house at a 30 per cent discount in 2020, it would appear logical to assume that any subsequent change in the discount – to, say, 40 per cent – would not apply retrospectively.

There also needs to be transparency, with homes under the scheme advertised with the discount made clear so potential buyers understand exactly what they are purchasing.

There is also the problem of securing sites for First Homes. Whilst the government believes that such homes can be delivered as ‘exception sites’ which are otherwise unallocated, the reality is that this may only work in more expensive locations. The required discount will mean that, in areas where general house prices are relatively low, it will be difficult, if not impossible, to achieve a land value which would entice owners to sell. As is so often the case, it may be a policy which only works in London and the South East.

It is then essential that the government grapples with these key issues and implements the scheme in a way that takes full account of potential implications for the broader residential property sector.

For more information contact Paul Walton on 01772 369669.