Government consults on First Homes Scheme

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The government has issued a consultation paper on the First Homes scheme which offers first time buyers a 30% discount on new builds. The primary objective of First Homes is to support people in purchasing a home in their local area who cannot afford a property on the open market. But how effective will it be and how does it differ from other Discounted Market Sale housing and other government first homes schemes?

Discounted homes

Some housing is already provided through Discounted Market Sale housing. This is offered at a discount of at least 20% of open market process, with eligibility to purchase determined by local markets and circumstances. However, the government estimates that only 1000 such properties are built each year and says that this is insufficient.

The government believes that First Homes will provide a solution. It recognises that in areas such as London and the South East, a 30% discount will not be enough and therefore the local authorities will be given discretion to set higher discounts on a site by site basis. To allow flexibility, the scheme won’t have a set maximum level of discount.

The discounted sale price of the home will last in perpetuity so that the future home buyers can access the discounts. If a purchaser receives a 30% discount from the market price, they must sell it for 30% below market price. The government proposes to achieve the discount in perpetuity by placing restrictive covenants on the properties, which will require that they are sold at the original percentage discount in each subsequent resale. The covenants will be re-established with every new purchaser of the property and, when it is sold, the buyers will not be able to secure good title over the property unless the covenant enforcing the discount is met.

The consultation also suggests that an independent valuation of a First Home property should be undertaken both on the initial sale and all subsequent resales. The valuations should compare the discounted property price with the projected open market value without any restrictions. The value of the properties available under this scheme will be capped before the discount is applied.

Eligibility

The government intends that the First Homes scheme prioritises local people and that the definition of ‘local people’ will be set by local authorities, based on either residency or work location. The prioritisation of local connections tests will be time limited to allow for homes to be made available if local buyers cannot be found. The scheme will also allow local authorities to prioritise essential local workers, such as police officers, nurses and teachers in their local areas.

The government intends to make special allowances for serving members and recent veterans of the Armed Forces in buying a property under the First Home scheme, as part of its commitment to Armed Forces Covenant. 

Restrictions

Under First Homes scheme, a purchaser will be restricted to using the property as their ‘sole or primary residence’. However, the government recognises that there will be occasions where people will need to spend some time away from their home, such as short postings to another relocation or care commitments for family members. In such circumstances, the government is minded to make allowances for First Homes owners to move out and let their property for a time limited period of up to two years, without requiring local authority permission. Lettings periods in excess of two years will be at the discretion of the local authority.

Developer Contributions

The government wants to ensure that more developer contributions are used to deliver homes sold at a discount by either ensuring:

  • A percentage of affordable homes delivered through s106 agreement are First Homes; or
  • A percentage of all units delivered on suitable sites (over 10 units) are sold as First Homes.

The scheme will be secured through s106 agreements, requiring developers to build certain types of affordable housing and building new homes for sale through this method could cut the amount of affordable homes for rent and shared ownership. The second option listed above would allow for wider delivery of affordable homes but could impact the viability of some sites.

Exception sites

The government will amend the existing policy for exceptions sites, Paragraph 71 of the National Planning Policy Framework (NPPF) to:

  • Specify that the affordable homes delivered should be First Homes for local, first time buyers,
  • Allow a small proportion of market homes on a site where essential to ensure that the development is deliverable; and
  • Remove the threshold on site size set out in footnote 33 of the NPPF but retain that they should be proportionate in size to the existing settlement.

The government believes the use of this policy has been limited and that there has been lack of clarity about its application. However, it wants to utilise the policy to deliver its First Homes agenda. It remains to be seen whether that will be workable and effective in delivering more First Homes.

Exemption

Affordable homes are currently exempt from the Community Infrastructure Levy (CIL), as the developer is providing homes to meet a social need and therefore likely to receive a lower return. At present, local authorities apply for CIL relief to homes sold under Discount Market Sale. The government proposes introducing a national exemption in England from CIL for all developments providing First Homes and will amend the CIL Regulations to reflect this.

Comment

On first glance, the government’s proposal for First Homes scheme appears promising and a discount 30% or more will be appealing. However, there are concerns that First Homes will have an impact on low rented affordable housing going forward, when the provision of such social housing is already low. Secondly, the home owner won’t be able to recover the full value of any kind of improvement to their homes, e.g. extensions and loft conversions, as the restriction on the property will require that the home is sold at whatever discounted value it was purchased. This may deter some buyers who would want to recover the full value of any improvements they may make rather than getting only 70% equity value of the improvements.

Time will tell how successful the First Homes scheme is in comparison to similar government schemes, such as Help to Buy ISAs and loans, Shared Ownership and Starter Homes, all of which offer various discounts and encourage uptake by local people.

The closing date for the consultation is Friday 3 April 2020.