First Homes Scheme: discounts for new property buyers

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The government’s First Homes Scheme, which aims to help people onto the property ladder, has been up and running for a month or so. Who will it benefit?

What is the First Homes Scheme?

The scheme allows first time buyers to get up to 30% off the price of a new-build home. According to the government, new buyers could save up to £100,000 on their first property purchase. In areas where it is especially hard to get on the ladder there is provision for this discount to increase to as much as 50%.  The First Homes Scheme launched on 4 June 2021.

The new scheme only applies to specific new-builds, which come under the description of ‘affordable housing’ in planning terms. These homes must be available for at least 30% less than their market value, and this discount must be passed on to subsequent buyers (in theory providing discounted homes for first-time buyers in perpetuity).

The homes must not be for sale for more than £250,00 once the discount has applied (this price rises to £420,00 in Greater London). However, councils do have some power to lower those price caps if they can make a good case for doing so.

The government expects that at least a quarter of affordable homes should be sold under the First Homes scheme.

Who is eligible to take part?

The scheme is designed to help people such as key workers (for example teachers and nurses) to get on the property ladder, especially in big towns and cities, which often see them pushed out of the area due to house prices. Councils can prioritise key workers – and can also apply requirements for local connections depending on the needs of their community.

Only First Time Buyers can take advantage of the scheme.

If your combined annual income is less than £80,000 (£90,000 in Greater London), and you require a mortgage to buy the property, you are likely to be eligible.

Secretary of State for Housing, Communities and Local Government, Robert Jenrick said: “Thanks to First Homes, we 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.”

Where can I buy?

The East Midlands was one of the first areas to have houses available as part of the scheme, with more sites to come across England over the next month or so. The plan is that there will be another 1,500 homes available as part of the scheme from this autumn.

The overall plan should see up to 10,000 homes a year being made available in this way, which should help the government’s pledge for one million new affordable homes during this Parliament, to open home ownership up to more people.

How can I get a First Homes mortgage?

Recognising the fact that first-time buyers – especially key workers – are unlikely to have high deposits to put down on a property purchase, the major lenders (including Nationwide and Halifax) will be offering high loan-to-value mortgages to support the scheme. Local building societies and community lenders will also be offering similar products.

What’s the verdict?

Online property listing giant Rightmove’s property expert Ian Bannister said: “We’re seeing a lot of first-time buyers entering the market at the moment, now that there are more lower deposit mortgages available, so there’s likely to be a scramble for properties being sold under this scheme.

“If you are eligible to buy a home under this scheme and you find one in your local area, you’ll need to act quickly to have the best chance of securing one.”

However, there are still concerns about the scheme, especially for properties in London and the South East. With the average London house price nudging half a million, Dolphin Living chief executive Olivia Harris suggests that a First Homes property with the discount will still cost £350,00. She said it was “not affordable to a London median earner, defined by HMRC in 2018 as being on £26,300”. She added: “It would possibly be affordable to a dual-income household, but they’d need a deposit of at least £35,000, which puts this out of the reach of many.”

Estate agent Savills, meanwhile, points out that: “the initial pilot scheme is in Bolsover, where a 700 sq ft property with a 30% discount is affordable for 59 per cent of households. But in an area where affordability is already stretched, the scheme will benefit fewer people. In St Albans, for example, we calculate that only 22% of local households could afford to buy a 700 sq ft property with a 30% discount, and in London, that falls to just 12% of households.’’

If you would like to discuss applying for a mortgage on a First Homes property, or any other financial matter, J Finance, will be happy to help. Please contact us without obligation.

Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across England and Wales. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email contact@jfinance.co.uk.