First Homes Scheme: Buyer's Questions Answered
- AuthorNick Fielding
What is the First Homes scheme?
First Homes are intended to help first-time buyers onto the property ladder. A set of national criteria (and where applicable local criteria) has been put in place to help ensure that First Homes go to those who would otherwise struggle to buy a home. In some areas, priority may be given to people who work in certain occupations, or who already have a connection to the area. This additional local criteria is set by the relevant local authority. Members of the Armed Forces, the divorced or separated spouse or civil partner of a member of the Armed Forces, the spouse or civil partner of a deceased member of the Armed Forces (if their death was caused wholly or partly by their service) or veterans within five years of leaving the Armed Forces are exempt from needing to meet any local connection or key worker restrictions set by local authorities. In such cases, all other eligibility criteria, including first-time buyer status and the household income caps, would still have to be met.
Under the scheme, a number of new-build homes will be sold with at least a 30% discount off their open market valuation.
Whilst not all new-build developments will have properties for sale under the scheme, the government says at least 25% of all affordable housing sold should be made available with the First Homes discount.
How does the First Homes scheme work?
First Homes will be offered on a limited number of plots in most new developments once the scheme is fully up and running. You should start by checking whether the builder is currently offering the scheme on the development where you want to buy. First Homes does not have an application deadline and is open to eligible applicants whenever plots are available. You will then apply to have your eligibility confirmed when you are ready to reserve a plot under the scheme.
Under the First Homes scheme, first-time buyers will be able to purchase new-build homes with a discount of at least 30%, rising to 40-50% in some cases.
Properties marketed under the scheme are subject to price caps to help ensure they’re sold to the people who need them most. The price cap, which applies after the First Homes discount has been applied, is £250,000 and, £420,000 in Greater London.
That means, for example, a property with a valuation of £300,000 could be sold for £210,000 with a 30% discount.
Am I eligible for the First Homes scheme?
To be eligible for the First Homes scheme, you must:
- Be a first-time buyer, meaning you’ve never owned a property before. To buy a first home, you will need to sign a declaration confirming that you are a first-time buyer
- Both be classed as first-time buyers if you’re buying with someone else
- Be buying a property to live in, not rent out
- Have an annual household income of less than £80,000 (£90,000 in London) in the tax year immediately preceding the year of purchase
- Have a mortgage or purchase plan that covers at least 50% of the property’s discounted purchase price
What deposit do I need to buy under the scheme?
Because properties for sale as part of the scheme come with at least a 30% discount, your deposit requirements will be smaller.
For example, a £260,000 property would require a standard 10% deposit of £26,000, or £13,000 as a 5% deposit.
Under the scheme, that property could be sold for £182,000 with a 30% discount applied, meaning your 10% deposit would be £18,200 and 5% would be £9,100.
Can I use a Help to Buy ISA or a Lifetime ISA to purchase a First Home?
Yes, as long as the purchase also complies with the rules of the Help to Buy ISA and Lifetime ISA schemes. The ISA schemes have price caps, which are currently:
- Help to Buy ISA: £250,000 (£450,000 in London)
- Lifetime ISA: £450,000
For a First Home purchase, these caps would apply to the price of the home after the discount has been applied.
Will I pay Stamp Duty Land Tax (SDLT) under the First Homes scheme?
First-time buyers are exempt from SDLT on the first £300,000 of a property’s purchase price. With First Homes scheme properties capped at £250,000 outside of London, it’s highly unlikely you’d need to pay any SDLT when buying one.
What other schemes are available for first-time buyers?
Besides the First Homes scheme, first-time buyers can access Help to Buy equity loans, Shared Ownership and the 95% mortgage guarantee scheme to assist them with purchasing their first property.
Help to Buy equity loans
Help to Buy equity loans are available for first-time buyers and cover up to 20% of a new-build property’s purchase price, or 40% for buyers in London.
The buyer is required to put down a 5% deposit, with a 75% mortgage (55% in London) covering the remaining balance.
Equity loans track your property’s value, so if it falls, you could pay back less, but if it rises, you’ll pay back more.
NB: You cannot use the Help to Buy equity loan scheme in tandem with the First Homes scheme
Shared Ownership is open to first-time buyers and existing homeowners.
Under Shared Ownership, you purchase a share in a property, usually between 25% and 75%, and then pay a reduced rent on the remaining portion you don’t own.
Over time, you can buy more shares, eventually ‘staircasing’ to full ownership if you wish.
The 95% mortgage guarantee scheme
The 95% mortgage guarantee scheme is aimed at encouraging lenders to offer more mortgages to buyers with 5% deposits.
This scheme offers lenders additional protection as the government guarantees a portion of a buyer’s 95% mortgage.
If you require further advice regarding this, or any other legal issue, please contact Chattertons