On 4th June 2021, the government launched their First Homes policy. In short, it’s a new affordable housing initiative, aiming to give first-time buyers a step up onto their local property ladder.
In this article, we’ll be looking at what it is, how it compares to other schemes (such as shared ownership and Help to Buy), and how it could impact developers.
The government give the following definition of the scheme:
“First Homes are a specific kind of discounted market sale housing and should be considered to meet the definition of ‘affordable housing’ for planning purposes...First Homes are the government’s preferred discounted market tenure and should account for at least 25% of all affordable housing units delivered by developers through planning obligations.” Gov.uk
The big sell of the new initiative is that there’s the potential for first-time buyers to save up to 50% on the price of their first home.
There are, of course, some important caveats to note:
There’s already a number of affordable housing schemes out there, but First Homes offers first-time buyers full ownership of their property whilst offering a discount on the total value of the home, not just a cheaper deposit.
On the other hand, the Help to Buy: Equity Loan scheme is focussed on decreasing the deposit needed to buy a first-time home with the government having an equity share of up to 20% (or 40% in London).
Shared ownership is, as the name suggests, a scheme which enables partial ownership of the home whilst paying rent on the rest. There’s the opportunity to buy a greater share of the property over time.
The unique appeal of First Homes is the increased independence for first-time buyers. Unlike with Help to Buy or shared ownership, they won’t need to repay equity loans, pay rent or buy more of their own home further down the line. Essentially the experience will be pretty much the same as buying a house without government assistance, just at a heavily discounted price.
Surely, win win?
Despite the predicted popularity of the scheme with first-time buyers, professionals within the property industry have raised some concerns about the practicalities.
In 2020, there were over 300,000 first-time buyers – and with speculation that many people held off buying last year due to the pandemic, 2021 could be set to be an even bigger year.
This autumn, 1,500 homes are anticipated to come to market as part of the First Homes initiative. After that, at least 10,000 homes per year for the next few years will be delivered.
If these homes are delivered as planned, then a conservative estimate (using 2020’s stats as a benchmark) would mean that the supply would cater to just over 3% of first-time buyers next year.
Obviously not all of these buyers would be eligible for the First Homes scheme but this does indicate that there will be a major misalignment between supply and demand.
Although intended to ensure affordable housing is going to those who need it, the price caps imposed on First Homes could end up having the opposite effect.
After discount, homes must be priced no higher than £250,000 (or £420,000 in Greater London) to meet the First Homes criteria.
“There seems to be a political push to replace shared ownership with First Homes as intermediate tenure of choice as it avoids having to pay so much grant out BUT introducing a price cap on valuations will lead to a skewing of the size and type of properties as a result, particularly in higher value areas such as the SE.” - Mark Pantry, Senior Land Manager, Rydon Homes
Faced with delivering homes which must remain under a certain price, developers may err on the side of caution by building smaller units – namely one bed or studio flats.
In turn, this may prevent buyers with families from benefiting from the scheme. Many may decide to stay renting rather than downsize, particularly considering that the monthly costs of renting are now cheaper than those associated with buying for the first time in six years.
There’s a real risk that some lower income households will end up being priced out of the scheme in areas like London and its neighbouring counties.
Savills ran an exercise to see how eligibility for the First Homes scheme varied throughout the country.
Throughout the North and the Midlands, the percentage of those predicted to be eligible for a 900 sq ft, 3-bed First Home was consistently between 16-18%. When we look at London, however, the sweet spot for eligibility shrinks to as little as 5%. It’s also worth noting that their data was gathered in October, and since then there’s been a further rise in house prices.
The huge discrepancy in accessibility to these homes indicates that there needs to be a reevaluation to the eligibility criteria in areas where house prices are higher in order to ensure equal national access to the scheme.
For a project designed to provide housing in the areas in which people live and work, the varying levels of accessibility across the country could in fact be a driving force to relocate to a more affordable area.
Developers should already be anticipating how First Homes could influence their future building plans, especially by paying attention to where new opportunities could lie.
Flexibility around the location of new sites will also be a game changer and help developers to build homes in areas where they can be snapped up quickly.
Many developers may be put off looking for new-build opportunities in London if they know that there are a lot more first-time buyers up North who are eligible to buy under the First Homes scheme.
It’s also worth looking at the difference in market value between new-builds and existing homes.
We’ve crunched the numbers to see where the highest new-build premiums are in England.
Unsurprisingly, London had the biggest price difference between new-builds and existing homes for the first half of 2020.
However, there were some interesting changes outside of London to note. Herefordshire, Bath and North East Somerset, and West Berkshire saw the biggest jump in new-build premiums between 2019 and 2020.
Take a look at our exclusive heatmap to see how new-build premiums differ by region.