Getting onto the property ladder is notoriously difficult. From unaffordable deposits to scrupulous mortgage criteria, there are many reasons why people struggle to buy their first home.
But statistics show that while the number of first-time buyers did fall by nearly 50,000 in 2020 due to the COVID-19 pandemic, by the end of the following year, this figure rose to an all-time high. In 2021, a whopping 409,370 properties were sold to people who had never bought a home before. That’s over 100,000 more than in 2020.
It could be argued that this was largely due to property sales finally going through after being put on hold as a result of the pandemic. But the introduction of the First Homes Scheme in June 2021 has played a part too.
But what exactly is this scheme, and who qualifies for it? In this article, we’ll explain all.
What is the First Homes Scheme?
The First Homes Scheme is a government initiative that’s designed to help first-time buyers and key workers get onto the property ladder by offering them a discount of between 30 and 50 per cent less than a property’s market value.
The discount varies depending on where the property is located. However, it will apply forever, so generations of new buyers can benefit from the discount each time the property is sold.
Continue reading to find out more about the First Homes Scheme.
Who qualifies for the First Homes Scheme?
To be eligible for the First Homes Scheme, you must be over 18 years of age and meet the following criteria:
- You must be a first-time buyer — You must not have owned property in the UK or abroad. This also applies to anyone you are buying with.
- The property must be your main residence — It cannot be a buy-to-let or a second home.
- You must earn under a certain amount — Your household income must be less than £80,000 outside London or £90,000 if you are buying in London.
- Your mortgage must be over a certain amount — Your mortgage must be at least 50 per cent of the discounted value of the property.
- The property must be worth under a certain amount — The property you’re buying must be worth less than £250,000 at the discounted price outside London or £420,000 in London.
In addition to this, local authorities may also set their own eligibility criteria, and some will prioritise giving First Homes discounts to key workers and those who already live in the area. That said, you will be exempt from these conditions if you are a:
- Serving member of the armed forces
- Veteran who left the armed forces in the last five years
- Divorced spouse or civil partner of a member of the armed forces
- Surviving spouse or civil partner of a member of the armed forces who died either wholly or partly by their service
It is also worth noting here that the First Homes Scheme is currently only available in England.
How does the First Homes Scheme work?
As mentioned above, the First Homes Scheme works by offering new-build properties to first-time buyers and key workers at a discounted rate of at least 30 per cent of their market value. Some local authorities even offer higher discounts of 40 or 50 per cent.
Example: A property with a market value of £250,000 could be bought for £175,000 with a 30 per cent discount offered under the First Homes Scheme. This would save the buyer £75,000.
Every property sold as part of the First Homes Scheme is valued by an independent surveyor to ensure that the discount is based on the property’s actual market value.
The property can either be a new home built by a developer or a home bought from someone else who originally bought it as part of the scheme.
What if I want to sell my property?
You can sell your First Homes property whenever you wish; however, the discount is applied every time the property is re-sold. This means the new buyer will be entitled to the same discount (note that when re-selling, the price caps don’t apply).
Example: You bought a property with a market value of £250,000 for £175,000 with a 30 per cent discount under the First Homes Scheme. By the time you come to sell, the property’s market value has increased to £300,000. The same 30 per cent discount must be given to the new buyer, meaning its selling price is £210,000.
Again, your property will need to be independently valued to ensure that the discount is based on the property’s actual market value.
If, however, you don’t find a First Homes buyer within six months of your property being on the market, you will be able to sell it for its full value on the open market to any buyer. Although, you will need to pay your local authority the value of the discount at the final sale price.
How do I apply for the First Homes Scheme?
Here’s how to apply for the First Homes Scheme in five steps:
- Start by getting a mortgage agreement in principle so you have an idea of the types of homes you can afford.
- Next, you can do some research into which new-build developments in your local area are offering First Homes.
- Once you’ve found a First Home you like, contact the builder directly, who will check your eligibility and help you make an application to the local authority.
- Pay the reservation fee set by the developer. (If your application is unsuccessful, this fee will be refunded.)
- If your application is approved, the plot of land will be reserved for you, and you can move on to the next stages of the house-buying process.
If your application is successful, you will need to do the following in order to complete the purchase of your First Home:
- Apply for a mortgage of at least 50 per cent of the discounted value of the property. You should only submit your mortgage application only once you have received the Authority to Proceed.
- Appoint a conveyancing solicitor to help you with the purchase.
- Arrange for an independent survey to be carried out to confirm the property’s actual market value.
- Complete any legal documents sent to you by the local council.
- Once you’ve received a mortgage offer and have agreed a contract with the developer, ask your solicitor to contact the local council about when you can exchange contracts.
- Pay your deposit on the same date you exchange contracts.
- The developer will then set the completion date, which is the day on which you can move in.
If you want to know more about what you need to do when buying your first home, you can read our article for some top tips.
How much deposit do I need?
To buy a property through the First Homes Scheme, you will usually need a deposit of at least five per cent of the discounted purchase price. However, this can vary depending on the property and which mortgage provider you use.
It’s worth mentioning here that in addition to the deposit, there are multiple other costs associated with buying a house. Some of these include legal fees, valuation fees and insurance.
First Homes Scheme: Pros and Cons
What are the advantages of the First Homes Scheme?
- You have full ownership of your home, unlike with shared ownership schemes
- You get a considerable discount on the market value of your first home
- You can buy a property with a much smaller deposit than you would if you weren’t going through the scheme
- You can find a home in your local area, meaning you don’t have to move too far away from where you currently live
- If you buy from another First Homes buyer, you pay reduced stamp duty, as it is based on the discounted price, not the actual market value
- If you buy a new build, you are exempt from paying stamp duty, as it only applies to first-time buyers purchasing properties that are worth more than £425,000 (which is less than the First Homes Scheme price cap)
What are the disadvantages of the First Homes Scheme?
- New builds are often sold at a premium, meaning you could be paying more than you would for a similar, older property on the open market
- When granting planning permission, local councils could favour the developers, meaning less social housing
- When it comes to selling, you have to pass on the discount, meaning you make less profit and it takes more time to work your way up the property ladder
- You must try to sell to another First Homes buyer
- There’s only limited availability, so you need to act fast
Alternatives for first-time buyers
If you are ready to buy your first house, but you either don’t want to go through the First Homes Scheme or you’re not eligible for it, there are some other options for getting on the property ladder. Some of these include:
Help to Buy: Equity Loan
The Help to Buy Equity Loan allows you to buy a property with just a five per cent deposit. You can then borrow an equity loan from the government of up to 20 per cent of the property’s value outside London or up to 40 per cent in London.
This scheme enables you to buy a stake in a property rather than the whole thing. Rent must be paid on any part of the property that isn’t yours. However, you will have the option to increase your share in the future and could end up owning it all one day.
Right to Buy
If you live in a rented council house or flat, you may be able to buy the property at a discounted price with a Right to Buy mortgage.
If you’re struggling to save enough for a deposit, the Lifetime ISA could be a good option. You can save up to £4,000 per year, and the government will top it up with a 25 per cent bonus every year.
Help to Buy: Mortgage Guarantee Scheme
This scheme allows you to get a mortgage with just a five per cent deposit. If you default, the government will underwrite 15 per cent of the mortgage, meaning providers will be more comfortable lending you 95 per cent of the property’s value.
With a guarantor mortgage, you don’t need a deposit at all. However, a family member or close friend will have to support you in order to qualify for this type of mortgage. As your guarantor, they will be responsible for repaying any mortgage payments you miss.
The First Homes Scheme is a government initiative designed to help first-time buyers and key workers get onto the property ladder. Depending on the local authority, buyers can get a discount of between 30 and 50 per cent less than a property’s market value. For example, a property with a market value of £250,000 could be bought for £175,000 with a 30 per cent discount offered under the First Homes Scheme. This would save the buyer £75,000.
You can sell your First Homes property whenever you wish; however, the discount is applied every time the property is re-sold. This means the new buyer will be entitled to the same discount. For example, you bought a property with a market value of £250,000 for £175,000 with a 30 per cent discount under the First Homes Scheme. By the time you come to sell, the property’s market value has increased to £300,000. The same 30 per cent discount must be given to the new buyer, meaning its selling price is £210,000.
Don’t forget, you will need building and contents insurance once you have secured your home and are ready to move in. If you’re buying a home under a Government scheme and would like insurance advice, call your local branch who will be happy to help.