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Introducing the First Homes Scheme

The First Homes Scheme is a new Government plan to further help people having difficulty buying their own home to get onto the property ladder with at least a 30% discount on a new build house or flat.

The scheme is aimed at first-time-buyers, focusing on armed forces veterans and key workers such as nurses, police officers, firefighters and teachers who may have been priced out of the property market in the area where they live and work.

Announced in the Conservative manifesto in late 2019, the proposal was under consultation during spring 2020 and commenced on 4th June 2021.

First Homes Scheme Information

What is the First Homes Scheme?

It’s a new way to help people who are struggling to afford their own home. The Ministry of Housing Communities and Local Government issued a guide that stated: “The Government is committed to making the dream of home ownership a reality for everyone and we recognise that for many this simply feels out of reach. First Homes will be life changing for people all over the country aspiring to take their first step onto the housing ladder, by providing new homes at a discount of at least 30 percent”.

The key points highlighted in the guide include:

  • Eligible properties will be newly built, no different to other comparable properties on the market, but will be sold with a discount of at least 30%.
  • The scheme aims to help local people who want to stay in the local community where they live or work.
  • The scheme is designed for first-time buyers, giving special attention to key workers (such as teachers, nurses and the police) and the armed services (both serving members and veterans).
  • The discount will be passed on to help future first-time buyers in an effort to maintain an ongoing level of affordable housing.

How will it work?

The First Homes scheme allows first-time buyers in England to buy a new-build home at a discount of at least 30% on market value. Once the discount has been factored in, the maximum prices homes can be sold for will be capped at £250,000, or £420,000 in London.

To be eligible, you’ll need to be a first-time buyer and have household earnings below £80,000, or £90,000 if you’re in London. Buyers will also need to take out a mortgage of at least 50% of the property’s value.

The government have confirmed that major banks and building societies have committed to offering high loan-to-value mortgages on homes sold under the scheme with the following lenders having signed up so far: Chorley Building Society, Darlington Building Society, Halifax, Leeds Building Society, Mansfield Building Society, Nationwide and Newcastle Building Society.

Who is eligible for the First Homes Scheme?

The scheme is primarily aimed at local people who have been priced out of the housing market in the area where they grew up, live and work in. To be eligible you must meet the following criteria:

  • A purchaser (or, if a joint purchase, all the purchasers) of a First Home should be a first-time buyer as defined in paragraph 6 of schedule 6ZA of the Finance Act 2003 for the purposes of Stamp Duty Relief for first-time buyers.
  • Purchasers of First Homes, whether individuals, couples or group purchasers, should have a combined annual household income not exceeding £80,000 (or £90,000 in Greater London).
  • A purchaser of a First Home should have a mortgage or home purchase plan (if required to comply with Islamic law) to fund a minimum of 50% of the discounted purchase price.

Mortgage advice for the First Homes Scheme

Advice on what will be the right mortgage to meet your needs and ambitions will always depend on the many variable details in your individual circumstances.

If you are a key worker – a nurse, police officer, doctor, firefighter or teacher – or a serving or veteran member of the armed forces, then you will be given priority under the scheme. The main aim of the First Homes Scheme is to help people buy a home in the area where they grew up, live or work in, when price rises might be forcing them to move away from their local community.

High-street lenders Halifax and Nationwide Building Society, along with local building societies and community lenders, announced that they will be offering high loan-to-value mortgages against First Homes to support the roll-out of the scheme. With buyers having to take out a mortgage of at least 50% of the property’s value.

The rates are priced slightly differently to the standard mortgage rates such as is the case for the current Help to Buy: Equity Loan Scheme but still continues the trend that the bigger the deposit the applicant has to put down the lower the interest rate that the lender will offer.

Do I need a deposit on top of the discount for the First Homes Scheme?

It’s still too soon to know for sure, but it does seem that – unlike the possibilities under the Right to Buy scheme – buyers will need to find a deposit for their mortgage, rather than the discount amount on the property being used as such. As the discount on the properties will be passed on to the next buyer once the home is sold, we could anticipate that a deposit will be necessary. However, we are still waiting for specific advice.

The Government has said that it intends to create a model agreement to encourage mortgage lenders to support and participate in the First Home scheme, but again there are not yet any details on who will get involved to what kind of level, nor what terms they will offer.

All this said, we are waiting for further developments and statements to find out what level of deposit, if any, will be needed from borrowers under this scheme, and the knock-on effect this will have on the size of deposit required by lenders.

Do I need to pay back the First Homes Scheme discount when I sell the property?

The First Homes Scheme will give certain people at least a 30% discount on the price of a new build property. This is aimed at people who may have been priced out of the housing market in the area where they have grown up, live or work in, with priority given to teachers, nurses, doctors, firefighters, the police force and members of the armed services.

When the first buyer comes to sell the property, the scheme intends for the discount they received to also be passed on to the subsequent buyer. In this way, the property is kept within the affordable homes market. When a property under the scheme comes to be sold, it will need to be independently valued and the new discounted price would be what the subsequent purchaser would expect to pay.

The first time buyer is not required to repay the discount as it will  be passed on to subsequent buyers to ensure the property is always sold at a price much lower than market value, maintaining the stock of affordable housing within the local community and benefitting future generations.

The Government  has confirmed that that the purchasers will own the property 100% outright. Buyers should remember however that although they have bought the property at a discounted rate, any improvements they make to their home will be at full cost. When the property then comes to be sold, it will be at the discounted rate for the whole property in its current state at that time, so they may not benefit entirely from the increased value in their home due to improvements they may have made.

Mortgage lenders for the First Homes Scheme

The following lenders have signed up so far: Chorley Building Society, Darlington Building Society, Halifax, Leeds Building Society, Mansfield Building Society, Nationwide and Newcastle Building Society.

Do however watch this space and when things develop, we here at The Mortgage Centres will look to keep you abreast of any updated news in this area.

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