The Government’s First Home Initiative: How will First Homes Work ?

 24 July 2020

The Government’s First Home Initiative: How will First Homes Work ?

Details of the latest of the popular flagship housing projects by the UK government, simply named First Homes, has been introduced.

What it entails:

  • The ‘first homes’ scheme will provide housing to local first-time buyers and key workers at a minimum 30% discount.
  • In Johnson’s latest ‘new deal’ speech the ‘First Homes’ initiative has been proposed under the new ‘Affordable Homes’ Initiative there will be a 1,500 unit pilot of the pre-pandemic ‘First Homes’ Initiative.
  • The discount will remain ‘locked’ to the property keeping them affordable for generations of families.
  • The scheme will cut the deposit and mortgage requirements for local first-time buyers, applying to a proportion of new homes.
  • Veterans will be prioritised as part of the Armed Forces Convenant.
  • It is not permitted to use these homes as holiday homes or buy-to-lets, they must be occupied as a person’s principle place of residence (PPR) – there will have to be obvious exceptions to this, for example, if a person’s place of work temporarily changes or a family member needs care.

Questions over how First homes will work in practice:

The objective of the First Homes scheme being locals that are unbale to afford a house in their local area will be able to purchase a property rather than being forced to look elsewhere as a result of rapidly rising prices.

The First Homes product will be similar to the previously proposed ‘Starter Homes’ but improvements have been made on this scheme such as acknowledging the need for local flexibility in implementation and having discounts operating in perpetuity.

The discount is passed on to future first time buyers, so the benefits are passed along to future generations.

The continuation of the discount could mean any improvements made on the property will be discounted on sale.

One concern local authorities have is the scheme will not offer sufficient flexibility to secure a tenure mix, which matches their objectively assessed need. Therefore, First Homes will likely impact the ability for Local Planning Authorities to meet all types of housing need through the planning system.

First time buyers will still be able to buy First Homes through access to a conventional mortgage from lenders. The structure of any transaction will need to be approved by mortgage companies which will require mortgage exclusion clauses to protect their security.

In some local authorities house prices are more than 10 times average incomes – a discount of 30% on home purchase will do little to help key workers in those areas.

The charity, Shelter recently predicted “across the whole of England, only the richest 28% of private renting households earn enough money to be able to access a First Home. The vast majority of private renters – 3.3 million households – will miss out”.

If other policies that support demand continue to operate and prices continue to increase at a faster pace than incomes then First Homes will become even less affordable over time. On the other hand, increasing the level of discount would help fewer people and make it difficult for those it did help to be able to afford to move on to their next home.

There are concerns that ‘First Home’ and ‘shared ownership’ schemes will clash and result in a reduction in the supply of low-cost home ownership (LCHO) products and negatively impact on the supply of low rent homes.

First Homes could hinder the success of the ‘shared ownership’ product as adding a new LCHO to an already unstable market could impact the number of new build affordable homes for both rent and purchase.

There are still uncertainties surrounding the policy, such as how the discount will be enforced and who will administer the re-valuation of the property when it is sold.

Author: The Conveyancing Quote Team

The contents of this advice do not constitute legal advice.

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