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    What is the First Homes Scheme?

    By The reallymoving Team Updated 26th Mar, 2024

    As part of its commitment to deliver 1 million homes by 2024, the UK Government began the first homes scheme on 4th June 2021. But what is it all about?

    What is the First Homes Scheme?

    Under this new government scheme, new houses will be built in England known as ‘first homes’. These will then be sold at a discount of between 30-50% against the market value that remains attached to the property. Including this discount, first homes cannot be sold for any more than £250,000 (£420,000 in Greater London) on their first sale. The discount will then be applied in perpetuity, whenever the property is sold on to new First Time Buyers, benefiting future generations of buyers.

    Who can use the scheme?

    As the name ‘First Homes’ suggests, these properties can only be bought by First Time Buyers, as it is one of the schemes designed to get more people on the property ladder. However, simply being a First Time Buyer may not be enough to guarantee you one of these homes.

    As there are only so many houses that can be built, the councils for the area they are built in must prioritise certain people getting these homes over others. Under the rules of the scheme, councils should prioritise buyers who are local to the properties and those who work as key workers or in the Armed Forces (including separated or widowed spouses, and veterans who have left within the last 5 years).

    The definition of a key worker usually means those who work in medical, education, delivery and supermarket roles, as we came to know during the pandemic. However, councils participating in this scheme can set their own definition of a key worker to select careers that they consider key to their specific area.

    The council’s criteria for who can purchase a First Homes property is, however, only valid for the first 3 months of the property being on sale. After that time, it becomes available to any First Time Buyer.

    If you are purchasing the property as a couple you must both be First Time Buyers with a combined income of less than £80,000 (£90,000 in Greater London) in order to qualify for the scheme.

    How to use the scheme

    To purchase a First Homes property the process is much the same as with any other property. The home will be put on the market with the discount of at least 30%, though councils may increase this discount to incentivise buyers.

    You should then apply for a mortgage on the property via a lender. At this stage you will either be approved or rejected, with the council likely having a say in whether you are eligible for the property.

    As always the best course of action is to choose a mortgage broker. They can help you to determine whether you are eligible for a property, review your finances to become more attractive to lenders, and answer any other questions you have about the moving/mortgage process. They can also help you to find the lender offering the best deal on a mortgage.

    Many lenders have agreed to offer 95% mortgages on First Homes properties, so a broker will be able to help you find them.

    What kind of property can you buy?

    The discount only applies to new build properties built for the First Homes scheme, and not existing properties or other new builds built for other purposes. The type of property available does vary however, as both flats and houses are being built for the scheme.

    The First Homes properties may also be built in the same development as other properties but should not differ in quality to those around them.

    What are the benefits of the scheme?

    The clear benefit of this scheme, as with other First Time Buyer schemes, is that it allows those with lower incomes or fewer funds to buy a property and become homeowners. Getting on the property ladder this way makes it easier to buy in the future as you have proven that you can own and pay towards a mortgage. So, this doesn’t need to be your forever home, but is a way to take that first step.

    Another key benefit is that the discount does not affect how much of the property you own, like in schemes like Shared Ownership. Even though you have only paid for at most 70% of the property you will still own the entire property outright after the sale is completed.

    The scheme also does not have an effect on Stamp Duty, which will be based on the discounted price you paid for it not the market value. The same rules for First Time Buyers and Stamp Duty will apply as always, meaning if the property is under £300,000 you will not need to pay Stamp Duty.

    Are there any drawbacks?

    The main issue you will face with this scheme is the fierce competition for the homes. As we mentioned there are a limited number of properties in the scheme, which are being prioritised for certain people by the council. If you don’t meet their criteria, it will be difficult to get one of the homes, and the competition may be even stiffer after 3 months when you are competing with any First Time Buyers that are after it.

    Due to First Homes properties being prioritised to those who live locally to them (at least for the first 3 months) you location can be a hindrance to the scheme being accessible for you. If you live far from where these homes are being built, likely through no fault of your own, the scheme will likely not be available to you, unless they are still available after 3 months and you meet all other requirements. It’s also important to remember that the homes are currently only being built in England, so you cannot partake in the scheme if you live in Scotland, Wales or Northern Ireland.

    Finally, though this is an easy way to get on the ladder which could make it easier to buy in the future, there is the possibility that because you bought at a discount, lenders will not feel confident that you can buy a home at full price in future. This of course may depend on how soon you choose to move again, and what your income and savings are like at that time. The discount may also affect your profit potential on a new home.

    How long is it running?

    There is currently no end date to the scheme, as homes are still being built. It remains to be seen how many First Homes properties will be built in the future, but those that are built will continue to pass on the discount to future owners, so the scheme will carry on in at least that way going forward.

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