Tim Leonard
Brean Horne
The First Homes scheme is a government initiative that offers eligible first-time buyers the chance to buy affordable newly built homes in their local area at a discount of at least 30% of the market value.
Using the First Home scheme to buy a property lowers the amount of deposit you need to save and could make your mortgage more affordable too.
The First Homes scheme is currently only available in England.
How does the First Homes scheme work?
The First Homes scheme works by offering newly built properties at a discounted rate of at least 30% to local first-time buyers, including key workers.
For example, a property with a market value of £300,000 could be bought by an eligible first-time buyer for £210,000 if it was offered at a 30% discount. This would save them £90,000
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.
Whatever discount is applied to the property is fixed for its lifetime. This means that if the owner decides to sell, the new buyer will also benefit from the discounted price.
» MORE: How much deposit do I need for a mortgage?
Eligibility for the First Homes scheme
The First Homes scheme is currently only open to buyers in England. You’ll also need to match 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, must not have 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 or a buy-to-let investment.
- 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 apply for a first-time buyer mortgage of 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: The home you would like to buy must be worth less than £250,000 at the discounted rate. This rises to £420,000 if you’re buying in Greater London.
- Local authority rules: Local authorities have the power to apply their own eligibility criteria for the First Homes scheme. For example, defining who qualifies as a key worker or what it means to have a connection to the local area.
- Armed Forces: 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 and express an interest in a First Homes property, any rules surrounding locality won’t apply.
How to apply for the First Homes scheme
The first step to applying for the First Homes scheme is getting an agreement in principle from a mortgage provider. This will help you get an idea of how much you’ll be able to borrow.
Once you have a figure in mind, it’s time to research new-build developments in your local area. Not all developments will include First Home properties, but if you find one that does get in touch with the builder to find out more about the application process.
If you’re eligible, the builder will help you make an application to the local authority so that you can reserve a plot of land.
Once your application has been approved, you’ll need to apply for a mortgage of at least 50% of the discounted home price.
Several mortgage lenders have committed to offering 95% loan-to-value mortgages for First Homes to support people buying through the First Homes scheme.
What if I want to sell my First Homes property?
You’re free to sell your First Homes home at any time, but you will need to try to sell it to another first-time buyer who is using the First Homes scheme.
Your property will be independently valued, and the discount that you secured when buying will be applied to the new valuation to establish the price a new buyer must pay (the price caps don’t apply when re-selling).
So, if you’ve bought a First Homes property with a market value of £300,000 at a 30% discount for £210,000, and the market value is £400,000 when you want to sell, the same 30% discount must be applied to this, giving a selling price of £280,000.
The exception is if your First Homes property has been on sale for six months and an eligible First Homes buyer has not been found. In this instance, you may be able to sell your property for the full value on the open market to any buyer, but will need to pay your local authority a sum equal to the discount of the final sale price by way of compensation. This compensation should be the value of the discount the First Home was to be sold for, as a percentage of the final sale price.
» MORE: Learn about selling and buying a new home
Advantages of the First Homes scheme
The First Homes scheme could offer buyers the following benefits:
- Discount: The First Homes scheme could help you buy your first home in your local area at a discount of at least 30%.
- Smaller deposit: You can buy a home under the government scheme with a smaller deposit.
- Local connection: The First Homes scheme is aimed to help people find properties in areas where they already live or work in rather than looking further afield.
- Stamp duty: Stamp duty is based on the discounted price, not the market value. As first-time buyers only pay stamp duty on properties worth over £425,000, the price cap means you won’t pay any stamp duty on the First Homes scheme.
Disadvantages of the First Homes scheme
It’s important to consider these risks before applying for the First Homes scheme:
- New-builds: You can only buy newly built properties under the First Homes scheme and will have to keep an eye on local developments in your area.
- Selling restrictions: You must try to sell to someone else using the First Homes scheme.
- Limited profit: The discount attached to First Homes and the price cap could limit your profit potential and hamper progress up the property ladder if you want to sell.
- Price: New-builds are usually sold at a premium, which means the discount might not be as appealing as it sounds.
- Competition: Competition for homes is likely to be high, so you’ll need to act fast.
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.
Help to Buy: Equity Loan
With the Help to Buy equity loan, if you save enough for a 5% deposit, the government will let you borrow 20% of a new-build property price so that you can get a mortgage at 75% LTV. In London, the loan can be for up to 40%. Regardless of where you buy, no interest is payable on the loan for five years.
Right to Buy
If you rent from a housing association or the council and wish to swap paying rent for a mortgage, you may be able to purchase your current property at a discounted price using a Right to Buy mortgage. You must have lived in and paid rent on the home for at least three years to qualify.
Shared Ownership
By allowing you to buy a stake in a home, rather than all of it, a Shared Ownership mortgage can help if you’re struggling to afford to buy outright. You’ll have the option to increase the share that you own in the future, and could one day own it all, but rent must be paid on any part that isn’t yours.
Lifetime ISAs
A Lifetime ISA, and the 25% bonus it adds to your savings, is worth considering when trying to raise a deposit for your first home. You can save up to £4,000 into these tax-free accounts each year, with the government adding a bonus of up to £1,000 a year, until you hit age 50 (though you can only open a Lifetime ISA from the ages of 18 to 40). You need to keep in mind however, that charges will apply if you access the money before age 60 for any reasons other than purchasing a first home or terminal illness.
Gifted deposit
If a relative or friend wants to give you a deposit, a gifted deposit can help you realise your homeownership dreams. A lender will need reassurances that you’re not expected to pay the money back, but a letter from the person giving the money is usually sufficient as confirmation.
100% mortgages
No deposit is required with a 100% mortgage, but you will need a family member or a close friend to support you in getting one. Because of the guarantees your relative or friend must provide in case you don’t meet your mortgage payments, these are also referred to as guarantor mortgages.
Image source: Getty Images
About the Authors
March Mortgage Rates May Have Room to Fall Further
Fixed-rate mortgages could head lower, but a further Bank of England base rate increase could see variable rate mortgages rise again. Read on to find out mortgage rate predictions for March.
How I Bought My First Home In South East London
From saving up a deposit to finding the perfect home in South East London, we follow a recent first-time buyer in our My First Home series.
Is it Better to Pay Off Your Mortgage or Save?
With savings rates finally paying some semblance of a decent return, deciding whether it’s better to pay off more of your mortgage or put your spare funds into a savings account has got a little harder. Here’s what you need to consider.