When Robert Jenrick re-opened the housing market back in May he stressed the importance of not just buying and selling homes, but also building them. The central plank of the Government’s house-building policy is First Homes, which as Jenrick sets out will give a “30% discount on new homes for key workers including nurses and teachers and police officers as well as local first time buyers”.
There were some whispers of the First Homes policy being re-branded ‘Homes for Heroes’ to recognise the work of NHS staff and other key workers in fighting COVID-19. That suggestion hasn’t made it into the Government’s final policy, but below are the key elements that have.
1. The 30% discount will be a minimum
Each First Home will come with a discount of at least 30% of the market value of the property. In areas of high value, most-likely in London and the surrounding areas, that discount could reach as much as 40% or 50% if the Local Planning Authority can demonstrate the need for the higher discount through the local plan-making process. That means a higher discount will be applied to all First Homes in a local plan, rather than differing for each site.
2. There will be price caps
Government is keen to ensure that First Homes are targeted where they are most needed. Learning from the Help to Buy 2021-23 scheme where regional price caps are quickly becoming out-of-date, they have opted to keep the caps on First Homes simpler. These are set at £450,000 in London and £250,000 in the rest of England. This may cause some challenges in areas immediately surrounding London but on the whole provides more flexibility. Local authorities will have powers to reduce price caps to enable lower income households to access them.
3. And also income caps
Reflecting shared ownership, these will be set at £90,000 in London and £80,000 in the rest of England. Again, local authorities will be able to lower these caps for a period to make First Homes more accessible. This should particularly help local authorities that want to focus their stock of First Homes on key workers.
4. Only available to First-Time Buyers (with exceptions)
For consistency the Government will be using the Stamp Duty First-Time Buyer definition. There will, however, be a list of exceptions to the First-Time Buyer rule which the Government will publish in due course.
5. There may be extra benefit to local people
Local Planning Authorities will be able to set specific local connection restrictions provided they are able to evidence the necessity and viability of these restrictions. Local Planning Authorities will be expected to publish this evidence along with a clear statement of the process for assessing local connection restrictions.
6. But these will fall away if the home remains unsold
Clearly the Government does not want to see First Homes remaining unsold. Local connections restrictions are therefore expected to apply for a period of three months from when the property goes on sale, after which there will be a cascade down to other eligible buyers.
7. A mortgage will be required
Again to ensure that First Homes are targeted properly, buyers will be required to have a mortgage of at least 50%, ruling out cash buyers who should be able to afford a property on the open market.
8. The discount will be in perpetuity and protected by a restrictive covenant
While this makes sense to ensure that First Homes remain affordable over the long-term, our discussions with members suggest there could be challenges with flagging restrictive covenants on systems. This will be one we pick-up in the ongoing operational working groups.
9. Importantly for lenders there will be an MPC
The exact wording will need to be fleshed out by the working group, but the principle of a Mortgagee Protection Clause is important to support lender confidence. This means there will be a waiver on the discount in certain circumstances if a First Home is repossessed. There will be an expectation that once lenders’ costs are recouped, lenders should repay any premium to the Local Planning Authority.
10. Finally...lenders are not expected to police any of these restrictions
Oversight of the restrictions set out above will sit with Local Planning Authorities. While it is not specifically called out in the consultation response, we have been assured a number of times by civil servants that lenders will not be expected to check eligibility of borrowers in any way. Work still needs to go into how exactly local authorities will pre-qualify customers for lenders but this will be on the agenda for future meetings with officials.
The Government plans to kick off the First Homes scheme by funding a pilot of 1,500 homes. If this goes well, we can expect the scheme to be quickly scaled up. Of course, for this policy to work it needs a range of lenders on side, ideally offering high loan-to-value mortgages. The BSA is keen to hear from anyone with feedback on the points set out here.