After decades of rising property prices, first-time buyers have a mountain to climb to get on the property ladder. Thankfully, the government has stepped in to provide a number of schemes as a helping hand.
One of these is the First Homes scheme, which is a new scheme coming soon that gives you a discount on new builds. We give you the run down.
What is the first homes scheme?
The government First Homes scheme is a new policy that will provide discounted homes to first-time buyers in England who otherwise wouldn’t be able to afford one. More specifically, under this scheme, first-time buyers will be able to purchase a new-build home in their community at a discount of 30% on the market price.
For an average new-build property in England, this will equate to a saving of around £100,000.
Buying a first home is one of life’s biggest financial milestones – and challenges. Here you can find out more about how the First Homes scheme works.
How does the First Homes scheme work?
The First Homes scheme involves the building of new homes specifically to be sold at a discount. However, these homes are otherwise intended to be of similar specification to full-price homes.
Homes will then be put on the market at a discount of at least 30%. This discount however can be increased by local councils to up to 50%, such as in areas where property prices are very high.
These properties must be purchased by first-time buyers. If buying as a couple, neither partner can have previously owned a home. Otherwise, the properties are bought and sold in the normal way.
If and when the first-time buyer decides to sell the property, the home will be independently valued, and the scheme discount will be re-applied to this new value for the next owner.
This will ensure homes are always sold below the market price and will continue benefitting future generations of first-time buyers.
Who is eligible for the First Homes scheme?
You must be a first-time buyer to qualify for this scheme. You’ll also need to buy within your local area, with the intention of living in the property (i.e. it cannot be a holiday home or buy-to-let).
Although the scheme will be open to people in every profession, certain professions will also take priority. These include serving members and veterans of the armed forces, and key workers including nurses, police, firefighters and teachers.
Finally, to ensure the scheme helps those most in need, the government has also listed some price caps. These include:
- Caps on property prices - Properties under the scheme will be subject to a £250,000 price cap across England, after the discount. A higher cap of £420,000 will apply in London.
- Caps on household income - Buyers’ combined income is capped at £80,000 across England and at £90,000 in London. However, local planning authorities will be able to set lower caps for the first three months of sale.
When is the First Homes scheme going to start?
It’s launching on a site-by-site basis. The initial First Homes scheme 2021 properties were launched in June in Bolsover, West Midlands. Sites in Staffordshire and Durham have since offered First Homes scheme properties, and another has also been announced in Hampshire, which will have 310 homes to buy through the scheme.
There should be a further 1,500 First Homes by the end of the year. It’s a case of keeping your eyes peeled for announcements in your area.
What impact could the First Homes scheme have on the housing market?
Although the scheme is likely to get more people on to the property ladder, there’s also uncertainty over the impact the 30% discount will have on the property market.
Some new home specialists are questioning the effect it could have on the supply-demand balance – ultimately raising house prices at a greater rate in the long run. However, these companies arguably have a vested interest in keeping house prices high, so if they are arguing against the government First Homes scheme, they are probably more worried that it will anchor house prices lower.
This does indeed seem a more likely scenario, since more first-time buyers will be able to buy more cheaply, with a knock-on effect on the rest of the housing ladder.
There are separate concerns that the scheme might reduce the number of homes available for affordable and social rent. Much depends on how many of these new properties can be build over a short enough timescale.
Is this scheme going to make it easier to get a first-time buyer mortgage?
The scheme will require first-time buyers to purchase their property with a mortgage (or home purchase plan) that covers at least half of the purchase value. With the discount in place, the mortgage requirement will be lower.
However, the government is also aware that the market for lending on discount market homes is small, partly due to the limited number of homes available. Before, people have needed fairly high deposits, or have been charged higher interest rates on mortgages, for these types of homes.
The government has said it will improve the availability and competitiveness of mortgage finance under this scheme. Part of this includes adding a mortgage protection clause to provide assurance to lenders, including a waiver on the discount if a property is repossessed.
Can I use it in conjunction with other government schemes?
In the first consultation, the UK government has noted that, because the First Homes scheme already provides a significant discount over market prices, homes purchased under the scheme should not be eligible for further support under the Help to Buy equity loan programme.
Help to Buy vs First Homes Scheme
If you want government to help you buy your first home, you’ll have to choose between First Homes and the Help to Buy equity loan. So, which is best? Here are the key facts of each:
First Homes Scheme
- You get up to 30% off the price of a home, which you don’t have to pay back later
- You need to buy in your local area, which can help you avoid getting priced out of your own community
- You won’t need to borrow or put down as much money
- The discount will apply when you sell, meaning you can only sell to first-time buyers
- Carries a property price cap of £250,000 in England (rising to £420,000 in London) after the discount is applied
Help to Buy - Equity Loan
- You can borrow up to 25% of a property price (40% in London) to boost your deposit
- You get a loan, rather than a discount, which means you need to pay it back, but the repayments don’t start for the first five years
- You can buy a new build in any area and from any registered homebuilder that offers it
- Each region has a property price cap, ranging from £186,100 in the North East to £600,000 in London
How to apply for the First Homes scheme?
Here’s an overview of the steps you need to take to apply for First Homes scheme:
- Step 1 – Get a mortgage in principle – you’ll need this to reserve a property. If you want to get a 95% mortgage, meaning you’ll pay a 5% deposit, go through a mortgage broker who can access and search the whole market for you.
- Step 2 – Pay the reservation fee – once you find a home, you need to reserve it before the local authority can consider your application. If you’re not eligible, you’ll get this money back.
- Step 3 – Apply through your developer – they will take you through the necessary steps to submit your application or do it on your behalf. This will include proving that you are first-time buyers, which a solicitor can do for you through land registry searches.
- Step 4 – Get your Authority to Proceed – if your application is successful, the local authority will send you an Authority to Proceed and Eligibility Certificate. You’ll need to give these to your conveyancer and mortgage provider (or broker) so that they can start the next steps in the purchase.
How can I prepare to take advantage of this scheme?
Even if there aren’t First Homes available in your area right now, it could be worth preparing for when they do come to market. Get a feel for the price of new-builds in your area, then see how much they’re likely to cost with the discount in place.
Review your budget and see what you can afford and where you can start saving towards a deposit. It’s also worth checking your credit score and seeing what your borrowing power looks like. You can request a mortgage in principle from a lender, to get a good idea of what you can borrow.
Would I pay stamp duty on the full price or the discounted price?
First-time buyers are already exempt from stamp duty if their purchase is £300,000 or less. Because of the price cap of £250,000 under this scheme, it’s unlikely you’ll need to pay any stamp duty.