Tim Leonard
Brean Horne
If you’re a first-time buyer being priced out of buying in the place you call home, the First Homes scheme may be able to help. Read on to find out how the First Homes scheme works, who can qualify, and the rules to be aware of.
What is the First Homes scheme?
First Homes is a government scheme that offers eligible first-time buyers in England the chance to buy newly built homes in their local area at a discount of at least 30% of the market value. In some areas it may be possible to secure a discount as high as 50%.
Because of the discount, using the scheme may mean you can buy a first home with a smaller deposit. It could also help make your mortgage more affordable because you’re borrowing less.
How does the First Homes scheme work?
The properties available through the First Homes scheme will either be new-builds or homes previously bought through the scheme. They can be houses or flats, but they should be no different to others in the same development. Indeed, the only point of difference should be the minimum 30% discount at which a First Homes property must be sold.
Local authorities also have the power to offer higher discounts of either 40% or 50% to make sure the properties are affordable for first-time buyers and key workers in their local area. The potential savings are huge. If a First Homes property valued at £300,000 is discounted by 30%, the cost of the home to the buyer is £210,000, a saving of £90,000. If the discount is 50%, the saving is £150,000.
Something to note is that the percentage discount applied to the property at the outset is fixed for its lifetime. So if you buy a First Homes property and later want to sell, you must discount the price by the same percentage you were given.
» MORE: How much deposit do you need for a mortgage?
Eligibility for the First Homes scheme
The First Homes scheme is only open to home buyers in England. You’ll also need to meet the following criteria to be eligible for the scheme:
- First-time buyers only: You must be a first-time buyer to qualify for First Homes. This means that you, and anyone you buy with, can not have previously owned property in the UK or abroad. The property you want to buy under the scheme must also be your main residence and not a second home.
- Income limits: Whether you want to buy alone or with others, your combined household income must be less than £80,000 to qualify for First Homes. A higher threshold of £90,000 applies if you’re buying in London.
- Mortgage: You’ll need to get a mortgage for at least 50% of the discounted value of the property. You won’t qualify for First Homes if you have enough money to buy the property without a mortgage.
- Property value: New-build First Homes properties cannot cost over £250,000 at the discounted rate or over £420,000 if you’re buying in London. Note the caps don’t apply if you’re buying a re-sold First Home.
- Local eligibility rules: Councils have the power to apply their own eligibility criteria, allowing priority for First Homes properties to be given to those either already living locally, who may be on a lower income, or who the council deem to be key workers. However, if you are a serving member of the Armed Forces, a divorced or surviving spouse, or a veteran who left service within the past five years, any rules surrounding locality won’t apply to you.
How do I find properties in the First Homes scheme?
Finding a suitable First Homes property in your local area will require some research on your part. Unfortunately, there isn’t a dedicated First Homes website that lists all of the properties available under the scheme. Instead, you’ll need to keep an eye out for housing developments in your area that will include First Home properties. You should also keep a close watch on new listings by estate agents in case homes already attached to the scheme come up for sale.
How to apply for the First Homes scheme
The main steps when applying for a First Homes property include:
- Once you’ve found a property, speak to the developer and make them aware you want to buy using the scheme. If you’re buying from a previous First Homes buyer, contact the estate agent marketing the property.
- The developer or estate agent should check you are eligible for the scheme. They should also help you to apply, and submit your application to the relevant council authority.
- A reservation fee may need to be paid on a new-build property, but it will be refunded if your application is turned down.
- If the council says you qualify, they will liaise with the developer or estate agent, your conveyancer and your mortgage adviser (if you have one) over the next steps.
Arranging a mortgage
If the council approves your application, you’ll need to apply for a mortgage. You must use a mortgage to fund at least 50% of the discounted purchase price to be eligible for First Homes. You may want to get an agreement in principle from a mortgage lender earlier in the process to get an idea of how much you can borrow.
Several mortgage lenders have committed to offering 95% loan-to-value mortgages for First Homes to support people buying through the scheme.
» MORE: See current mortgage rates
What if I want to sell my First Homes property?
A First Homes property can be sold at any time, but you must try to sell it to another first-time buyer who is using the scheme.
Your property must be independently valued, and the discount that you secured when buying will be applied to the new valuation to establish the maximum price you can sell for (the price caps don’t apply when re-selling).
For example, you may have bought a First Homes property with a market value of £300,000 at a 30% discount for £210,000. If you then want to sell it, and the market value has increased to £400,000, the same 30% discount must be applied to this figure, giving a maximum selling price of £280,000. You’re allowed to sell it for less if you wish.
If your First Homes property has been on sale for six months and an eligible buyer has not been found, you may be able to sell your property for the full value on the open market to any buyer. In this instance, you must pay compensation to your local authority. This will be a percentage of the final sale price, with the percentage being equal to the discount you received when buying.
» MORE: Selling and buying a new home
Is the First Homes scheme a good idea?
The First Homes scheme can help some first-time buyers onto the property ladder where they already live. Some of the main benefits of the scheme include:
- Discount: You could get a new-build home in your local area at a discount of at least 30%.
- Smaller deposit: The discount means you can buy with a smaller deposit.
- Local connection: If you’re a first-time buyer living locally, a key worker, or a member or veteran of the armed forces, local authorities are encouraged to prioritise you for the scheme.
- Stamp duty: Any stamp duty payable is based on the discounted price, not the market value. Because first-time buyers only pay stamp duty on properties worth over £425,000, the price cap means it’s likely you won’t pay any stamp duty on the First Homes scheme.
» MORE: First-time buyer stamp duty relief
Are there any disadvantages to the First Homes scheme?
The potential downsides to consider ahead of using the First Homes scheme include:
- Largely limited to new-builds only: You’ll need to find a First Homes property that is being sold on, otherwise availability is restricted to new-builds and relies on developers in your area taking part in the scheme.
- Selling restrictions: If you want to sell, in the first six months after listing you can only do so to a buyer who also wants to use the scheme.
- Limited profit: The need to pass the discount onto the next buyer and the price cap could limit your profit potential and make it difficult to move up the property ladder.
- Price: New-builds can come with higher prices anyway, which could reduce the benefit of the discount compared with buying an older property.
» MORE: Check the latest UK house price trends
Alternatives to the First Homes scheme
First Homes is one of several government initiatives designed to help first-time buyers. If you’re still deciding whether it’s right for you, there are a few other options to consider.
Right to Buy
If you’re a council tenant in England and wish to swap paying rent for a mortgage, you may be able to purchase your current property at a discounted price using the Right to Buy scheme. There are similar schemes in Scotland, Wales, and Northern Ireland, and a Right to Acquire scheme if you’re a housing association tenant.
Shared Ownership
By allowing you to buy a stake in a home, rather than all of it, the Shared Ownership scheme in England can help if you’re struggling to afford to buy outright. You’ll have the option to increase the share you own in the future, and could one day own it all, but rent must be paid on any part that isn’t yours. Shared ownership is also an option in the rest of the UK, but with different rules.
Help to Buy
The Help to Buy equity loan scheme, which aims to help buyers with smaller deposits, is still available in Wales, but not in England, Scotland and Northern Ireland.
Forces Help to Buy
Under the Forces Help to Buy Scheme, eligible members of the Armed Forces can get an interest-free loan to help buy a property.
Lifetime ISAs
A Lifetime ISA, and the 25% bonus it adds to your savings, is designed to help you save for a deposit. If you’re eligible, up to £4,000 can be saved into these tax-free accounts each year, with the government adding a bonus of up to £1,000 a year.
» MORE: Best mortgage lenders
Image source: Getty Images
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