Pilot projects for the new First Homes scheme launches are now underway in Bolsover and will be rolled out across England from the end of June. The opportunity to invest locally and affordably is especially attractive for first-time buyers and key workers. There will, however, remain better-off areas of the country than others. Best Bizz wrote this article.
Thanks to a new government scheme launched last week, first-time buyers can secure a home for as little as half of the market value. Under the First Homes scheme launches, announced last year, selected new build properties (both houses and flats) are available at discounts of between 30% and 50% to first-time buyers. Bolsover, East Midlands, is now home to the first homes on offer through the scheme. However, the demand is fierce and most homes are expected to be snapped up very quickly.
By the end of 2022, the government plans to provide 1,500 First Homes, with a total of 10,000 available eventually (in a timeframe that is unclear). Consequently, some previously frustrated homebuyers will succeed in their quest to get on the property ladder – but many won’t.
The scheme could allow some people to move forward with their plans, or buy a larger house than they had anticipated. That was the sentiment of Tim Bannister, director of property data at Rightmove. A quick response from interested buyers will give them the best chance of securing one.
Am I eligible for the First Homes program? Rules and eligibility.
If you want to find out if you are eligible for the First Homes scheme launches or if it is suitable for your needs, here is a quick guide to the rules.
1. Rule: Only first-time homebuyers.
First-time buyers are eligible for the scheme (of course), and this applies to all registered owners – which means anyone who has owned a property in the past won’t be eligible. This also applies to inherited or gifted properties (so the proper term should be ‘first-time owners’ to exclude those who have owned properties in the past without buying them). Therefore, if you’ve never owned a property but your co-buyer has, you won’t be eligible for First Homes. Moreover, the property must be the first home you’ve owned without renting.
2. Rules: Minimum household income stated.
There is a maximum household income limit as well. All buyers should not have combined incomes exceeding £80,000 (or £90,000 in London).
3. Rule: Prices should be limited.
Throughout the UK, the First Homes scheme launches will only apply to low-to-moderately priced properties. Practically, this means a maximum price of £420,000 in London and £250,000 everywhere else. To benefit those on more typical incomes (and to prevent opportunists from gaining massive discounts on million-pound homes), this policy has been implemented.
It’s important to note that the price cap applies after the discount has been applied – so a house outside London that might retail for £50,000 might be offered for sale at £250,000.
4. Rule: Find a local partner.
Hazier rules surrounding First Homes include the requirement to have some sort of local connection with the area in which the home is located. Specifically, housing minister Robert Jenrick explained that First Homes will offer more homes to local people and families, allowing first-time buyers to stay in their local areas rather than being forced out by the rising prices. Jenrick also stressed that local key workers should have access to these properties.
There’s still no clear definition of what qualifies as a ‘local connection’. For example, you may have family in the area, be employed locally, or simply have lived in the area for some time. It is up to each Local Authority to decide who should be prioritized for the scheme, so the criteria may vary from one region to another. In all areas, priority will be given to key workers, such as NHS staff, police, firefighters, local retail staff, and delivery drivers (to name a few examples).
The size of the discount will also be determined by local councils – 30% is the minimum, but the council can raise it to 50% if it sees fit. As a result, receiving a greater discount is likely to be a major factor in being a key worker.
5. Rules: Share what you have.
Remember that this is a ‘for keeps’ discount – the same percentage discount will apply to all subsequent buyers, not just the first one. The government may have learned from its experience with ‘right to buy council houses – which allowed a few owners to profit at the expense of removing thousands of once-affordable homes from new buyers’ reach. During the selling of a First Homes home, the buyer must pass on the same percentage discount (e.g. 30%) that they themselves received, and the buyer must also meet the eligibility requirements at the time.
Having said that, if an owner cannot sell their First Homes property under the restrictions within six months, then they may be permitted to sell it on the open market – with an additional fee. Nevertheless, since affordable homes are in such high demand, such a scenario seems unlikely to arise.
This rule won’t deter most first-time buyers – a home is still a home. This is a point to consider, however, when looking at the long term. Since there is less opportunity to make such a big profit with the First Homes scheme launches (due to both the discount and the cap on property prices), buyers may struggle to climb the housing ladder as fast. In addition, the number of eligible buyers is smaller, which may further depress the resale price. Thus, the first move to a new home may well be ‘sideways’ – i.e. to a property of similar size, but a higher price – unless the buyer has accumulated significant extra savings or income.
What is the most affordable First Homes under the scheme?
There are currently only properties available under the First Home scheme in Bolsover, Derbyshire, but this scheme will be rolled out to the rest of England by the end of June. It has asked developers to ring-fence 25 percent of all new homes built, so most areas of the country should see a few affordable houses coming online soon if this target is met.
Although there have already been concerns that the scheme will not go far enough in the most expensive areas, such as London. Even if the maximum 50% discount is applied, this would mean a price tag of £250,000 for the average house in the capital. Considering the average (median) London wage is only £26,300, this is still a tall order for many buyers. One could borrow around £118,000 for a mortgage on that salary, so one would need an unrealistic deposit of £132,000.
As a couple, buying is more feasible – with average salaries, they could borrow up to £236,000 and would need only a deposit of £14,000. Even so, this still represents a 95% loan, and these types of mortgages are only now becoming available again as part of another government program. As a result, key workers buying in London may end up needing more than one type of assistance from the government.
Savills has estimated that just 12% of households below the earnings cap could afford a First Homes two-bed property in London (based on a 15% deposit and 4x income mortgage). Other parts of the UK paint a more optimistic picture. On the basis of these same criteria, the most affordable area for First Home properties is the North East, where 61% of eligible households could afford the scheme.
In Northern England, more than half of households are able to afford such properties, and this percentage is only slightly lower in the Midlands and the South West. Approximately 59% of households in Bolsover can afford the scheme, where it is being piloted. In the East and South East, only around a third of eligible buyers seem to have high enough incomes to afford homes.
By consulting a mortgage broker, you can further improve your chances of affording the right property if you think you may be eligible for the First Homes scheme launches. So that you can take advantage of any discounts that might be offered to you, your broker can find you the best deal from the whole market.