The First Homes Scheme: Another Route to Affordable Housing

Launched in June 2021, the First Homes scheme's first units entering the market through an early delivery project in the West Midlands with local authorities required to take First Homes into account from 28 June 2021.

First Homes, which will be considered to meet the definition of ‘affordable housing’ and, as the Government’s ‘preferred’ discounted market tenure, should account for at least 25% of all affordable housing units delivered by developers. Paragraph 65 of the NPPF seeks for 10% of homes in major developments to be for affordable ownership, and First Homes fall into this category. The minimum requirement of 25% of all affordable homes to be First Homes will need to be written into Local Plans and Neighbourhood Plans, although any local or neighbourhood plan that progressed to the publication stage (or further) by 28th June 2021 will not have to include a policy relating to First Homes until a subsequent update.

The key details of the scheme from a developer perspective are:

a) Discount on market value must be a minimum of 30%, up to a maximum of 50% depending on local circumstances
b) Sold to people meeting the criteria (either keyworkers or local residents)
c) Restriction registered on the title to ensure the discount/limitations in perpetuity, secured by s106 agreement
d) Post-discount price of no more than £250,000 outside of London (or £420,000 in Greater London) – although local authorities can set lower caps if evidenced

What does this mean?

Firstly, the First Homes scheme may result in a reduction in the overall number of residences accessible for shared ownership. The proportion of social rent specified in local affordable housing policy is preserved, although First Homes will now push it to second place. It appears that First Homes is focusing on subsuming shared ownership as a tenure. This will, of course, have an impact on some homeowners and registered providers. Many local governments' affordable housing plans are split roughly 70/30 between social/affordable rent and shared ownership, with the latter now dropping to third place.

Next, there's the problem of value and how it will affect units that are offered for social/affordable rent. To reach the £250,000 cap (excluding London), local authorities are likely to need to use a higher discount percentage in higher-value areas of the country.

For example, average house prices in Broxbourne, at the time of writing, are around £370k. Applying a straight 30% discount to this puts the price around £259k – which is therefore above the threshold. Higher discount requirements will therefore be unavoidable in some areas.

When combined with the overall priority given to First Homes, smaller developments could lose a substantial amount of value, and thus viability, as First Homes will be prioritised over social/affordable rent apartments, affecting the ability to supply this tenure. As a result, a potentially unintended consequence will be a further decline of the affordable/social rent stock.

But there are also benefits from a development viability perspective. These are discounted market housing, rather than a form that will require liaison with registered providers, and the price discount will be a known quantity at the application stage. This reduces uncertainty compared with other tenures, and simplifies the negotiation process. It will also potentially improve the viability of some developments, as first homes units are, in most areas, likely to generate better income than shared ownership units.

Whether you have a site going through planning currently or are in the formative stages of design, if you have any questions about First Homes and the implications for your plan, we can help discuss your options and their impact on viability.

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