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01/07/2021

First things first – getting to grips with First Homes

What are First homes and how will they affect the tenure mix of developments? Colette McCormack (pictured below) and Lindsay Garratt have the lowdown

3-minute read

As part of the Government’s commitment to overhaul the planning system and increase home ownership it has confirmed that it is pressing ahead with its First Homes policy, which will come into force on 28 June. A new kind of affordable housing, First Homes will offer discounted properties to first-time buyers purchasing new build homes. 

Crucially, it will be mandatory for a quarter of affordable homes to be delivered through the First Homes – limiting the amount of other affordable models like shared ownership and Discount Market Sale (DMS). At first reading, the scheme does look familiar to some of those more established models – particularly DMS – but there are some key and significant differences. 

DMS by another name? 

Both the First Homes scheme and DMS offer homes at a discounted rate.  Both are sold through the developer, are offered conditionally based on eligibility criteria, and require restrictions on the title to reflect the discount.

“With more affordable homes aimed at first-time buyers, there will be fewer left for others”

So far so similar - and those who have experience with DMS may therefore have a head start on understanding First Homes. But there are some crucial differences, and industry will need to get to grips with them to ensure the success of the scheme. 

Perhaps the most obvious difference is the discount itself. While DMS usually offers a discount of 20 per cent of the market value of properties, First Homes is higher, requiring a 30 per cent minimum discount. Local authorities will be able to require higher discounts up to 50 per cent.  They will need an evidence base to do so – making it unlikely that we will see these higher discounts initially as they will take time to work through the system. Unlike DMS, the First Homes scheme will also have a price cap which cannot be increased of £250,000 (and £420,000 in London). Both of these measures may affect the viability of developments in certain areas. 

The right kind of affordable? 

Only first-time buyers are eligible for First Homes, and with it taking up 25 per cent of affordable housing on a given development, that will naturally affect the demographics of certain areas – particularly places which may not traditionally be as appealing to first-time buyers. 

With more affordable homes aimed at first time buyers, that means there will be less left for others.  Social rent will be prioritised next, but this could mean squeezing out other forms of affordable housing, particularly intermediate tenures such as shared ownership. At a time where many local authorities are keen to increase the availability of rental housing, favouring home ownership (although a government commitment) may fail to get to the root of affordable housing need for some communities.

Keeping it simple

DMS is often perceived as being complicated, requiring bespoke drafting which can be costly and time consuming.  In contrast, First Homes will use a standardised framework to ensure consistency.  This should build confidence, both for local authorities in how to implement the scheme most effectively, but also for lenders, who have previously been reluctant to offer mortgages on DMS homes.

The impact of First Homes will be felt across the industry.  As with all planning changes, local authorities will be key to delivery.  For the scheme to be successful, there needs to be financial support for councils to prevent delay and to support planners, developers, and mortgage lenders to make sure First Homes achieves what it has set out to.  Ultimately, this is about empowering people to get on the housing ladder and improving communities. 

Colette McCormack and Lindsay Garratt are partners in the planning team at Winckworth Sherwood

Image credit | iStock

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