What is the First Homes Scheme?

The First Homes scheme is an affordable housing program introduced by the UK government in 2021. It helps first-time buyers and key workers purchase new build homes at a discount of at least 30% below market value.

The scheme aims to support home ownership and strengthen local communities across England. It is an ambitious initiative that expands access to discounted housing for buyers who may be priced out of the market.

Who is Eligible for First Homes?

The First Homes program has strict eligibility criteria for both initial and future purchases of the discounted homes:

  • First-time buyers only – The homes are reserved for those getting onto the property ladder for the first time.
  • Local connection – Priority is given to buyers with connections to the local area through work, family, or current residence. Some homes may have time-limited local connection criteria.
  • Armed forces personnel – Veterans and serving members have priority access to some of the First Homes properties.
  • Income caps – Maximum household income thresholds apply on a regional basis. Income caps typically range from £80,000 to £90,000 outside London.
  • Price caps – There are maximum property price caps tailored to each region. Price caps start from £250,000 and go up to £420,000 in London.

Local authorities work with developers to set specific qualifying criteria for First Home buyers in their area based on these eligibility rules.

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How Does the First Homes Discount Work?

With First Homes, buyers can purchase new build properties from developers at a minimum discount of 30% compared to the market price.

The actual discounted rates can vary, with some homes discounted by 40-50%. The discounted portion is locked in perpetuity, ensuring future sales stay affordable.

Here is an example to demonstrate how the First Homes discount works in practice:

  • Market value of new home: £300,000
  • First Homes discounted price (-30%): £210,000
  • Savings for buyer: £90,000

While buyers benefit from lower deposits and mortgage payments upfront, the discount means they will have less equity and capital appreciation later on.

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How is the First Homes Discount Maintained?

A core aspect of the First Homes program is ensuring the discounted rate remains in place when the homes are resold down the line. This prevents buyers profiting from significant windfall gains.

There is a formula that determines the maximum future sale price based on the market value at the time of resale minus the fixed percentage discount.

For example, if the home in the earlier example is resold for £350,000 later on, the maximum discounted resale price would be £245,000. This locks in the 30% discount.

Where are First Homes Available?

The First Homes scheme applies to new build developments and plots provided by house builders. The homes are delivered through developer contributions secured via Section 106 planning agreements.

Developers must now set aside 25% of all affordable housing units created on new sites for First Home buyers. Many local authorities also run waiting lists of prospective purchasers.

First Homes are being rolled out rapidly across England, with tens of thousands of homes expected over the next 5 years. By the end of 2022, over 2,500 First Homes had already been delivered.

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What are the Key Benefits of First Homes?

Alongside opening up homeownership, First Homes offer additional benefits:

  • Supports social mobility – The discounted houses help young people and lower income groups get onto the property ladder when they previously could not afford to. This aids social equality.
  • Strengthens communities – Prioritizing local buyers means more people can set down roots and invest in their areas over the long term.
  • Brings investment – The scheme draws buyers, developers, and infrastructure investment to certain communities. New amenities follow the homes.
  • Lower deposits – The reduced prices mean smaller deposit requirements for buyers. This can be as low as 5% on the discounted amount.
  • Smaller mortgages – Monthly mortgage payments are lower thanks to the decreased prices. This improves affordability.

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What Are Common First Homes Misconceptions?

Despite the benefits, some misunderstandings about First Homes persist:

Myth: “First Homes reduce incentives to build more homes.”

Reality: The 25% developer contribution rate mirrors existing affordable housing quotas. Margins are unaffected.

Myth: “First Homes are unfair when others cannot access this.”

Reality: The homes only aid specific groups like key workers and armed forces personnel. Strict eligibility rules apply.

Myth: “Discounts should not stay forever.”

Reality: Locking in discounts is vital to stop buyers profiting and ensure future affordability. There are resale price formulas in place.

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The First Homes scheme represents a groundbreaking policy targeted to critical issues like housing affordability and inequality.

With discounts of up to 50%, the program provides genuine assistance for first-time buyers struggling to get onto the property ladder. Tens of thousands of new discounted homes are set to follow across England in coming years.

If you meet the eligibility criteria in your area, the First Homes program may offer you a life-changing opportunity to finally purchase your own home.

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