Measures to stimulate the property market have been coming thick and fast over the last year or so. Here we’ll look at the latest scheme which has just been launched – First Homes – and what it could mean for the market.
What is the First Homes scheme?
First Homes is an official scheme which the Government say is intended to make it easier for first time buyers in England to get onto the housing ladder. It is aimed at buyers with a local connection to each area and at key workers.
The first First Homes went on sale at the beginning of this month in Bolsover, Derbyshire. The Government suggest there will be at least 1,500 more such properties available nationwide by this autumn. They say there could be around 10,000 a year available nationwide depending on demand.
How will First Homes work?
First Homes properties will be built by commercial developers but then sold at a discount to the local market value. This will be at least 30% and could be as much as 40% or 50%.
The initial and post-discount sale price of a First Home may not be over £250,000 – or £420,000 in London.
There are eligibility requirements for buyers. Their household income must be less than £80,000 (£90,000 in London). The property must be the buyer’s first property and be their own home.
Buyers must also take a mortgage of at least 50% of the purchase price so they cannot be bought outright with cash. Several mortgage lenders have already said they will offer 95% LTV mortgages for First Homes.
It is suggested that key workers could include workers as diverse as doctors and nurses to delivery drivers and supermarket workers. There is no exact definition of what a local connection is. Local authorities in each area will be able to set their own eligibility requirements and regulate discounts and price caps.
It’s important to note that the 30% to 50% price discount is not entirely without strings. If the house is subsequently sold it must be sold at the same discount on market value to the same type of buyer.
So what will First Homes mean for the housing market?
At first glance, First Homes seems to be an excellent opportunity for first time buyers who, potentially, could buy a home outright at up to half price. There could, however, be a few possible snags for developers, buyers and the market alike.
The availability of First Homes depends on commercial developers deciding and being able to offer them. Planning permission for First Homes will be considered together with the affordable housing requirement in new developments. But developers still need to have the land, time and resources to build these properties. It’s also unclear how providing First Homes will affect what other properties a developer offers within a development and their pricing.
It’s likely that First Homes could be in very high demand and very limited supply in many cases. That could have a knock-on effect on local markets and local prices.
Although the discounts seem very generous, First Homes could still be unaffordable by many of the buyers the scheme is designed to help. For example, in London a £420,000 property will still be unaffordable to many locals and key workers.
In some areas, due to local land and property prices, it will most likely not even be viable to build a property and sell it for within the price caps. For example, there are plenty of places even outside London where there is already nothing to buy for under £250,000. In many areas it might not be possible to build anything more than a small flat for under the price cap level, but small flats might not suit many eligible buyers such as families.
In cheaper parts of the country developers will probably find it easier to offer more First Homes. But then demand for them might be very limited in areas that are cheaper because those areas tend to be less popular.
While First Homes homes will no doubt attract lots of interest from first time buyers these buyers will need to consider whether a First Home is the right way to buy for them. The exact details of how the scheme will work have not become clear as yet. Added to which individual local authorities will be able to apply their own terms and conditions to the scheme. To some extent buyers will be buying a new type of tenure that is untried and untested.
A key issue is that the initial discount and the eligibility criteria needs to be passed on, and passed on in perpetuity. How this might impact future resale potential, demand and values of First Homes is uncertain. First Home owners who want or have to sell their property will have to sell at a discount. And they might find it difficult or impossible to afford another home on the open market.
At the end of the day it’s probably fair to say that the number of First Homes available will likely only be a limited proportion of the wider housing market. So the overall impact on the market will probably be limited too. However, the First Homes scheme is yet another intervention in the housing market that is likely to make it more difficult to understand ..... or perhaps more intriguing .... depending on your point of view.