First homes scheme for first-time buyers
It's no secret that first-time buyers in England find it increasingly difficult to get on the property ladder.
The new First Homes scheme for first-time buyers is a government initiative which hopes to change that.
But what is it? Who is eligible? How can you apply? And are there any hidden catches?
We take a deep dive into the First Homes scheme to find some answers.
What is the First Homes scheme?
The First Homes scheme is an initiative designed by the UK government to help certain first-time buyers achieve the dream of owning their own home.
While previous generations may have considered homeownership just another milestone on the way to adulthood, young people today haven't been so lucky. The spiralling cost of living and stagnating salaries have meant that property ownership is an unrealistic pipe dream for many.
This is especially true in areas where living costs have risen exponentially. Not surprisingly, this includes London and areas seeing increased tourism, such as Devon and Sussex.
The First Homes scheme is designed to give first-time buyers a leg up onto the property ladder.
It also hopes to address the problem of locals - especially key workers – being priced out of their communities. A 2021 report found that average UK house prices have risen six times faster than nurses' salaries in the past ten years, meaning in many cases, nurses can't afford to buy a house near the hospital they work at.
What is on offer?
Under the scheme, eligible buyers can get at least 30% off an eligible property compared to market value. Properties are purpose-built by developers who have successfully bid for the government contract, so they're all brand new and made to a high standard.
The First Homes scheme is only available in England.
After the discount has been applied, the First Home scheme properties must not exceed £250,000 in price (or £420,000 if they're in London).
Once you own a First Homes scheme house, you can sell it. But bear in mind that First Homes scheme properties will retain the discount even after it is sold. Therefore the savings will be passed on to the new buyer. The property must also be sold to someone else who meets the eligibility criteria for the First Homes scheme.
Who is eligible for the First Homes scheme?
The scheme is open to people who meet the following criteria:
- at least 18 years of age
- a first-time buyer
- the First Homes property must be the buyers' first and only home (this applies to both parties if the buyers are a couple)
- the buyer must have a mortgage agreed for at least half the price of the property
- the buyer's household income must not exceed £80,000 (or £90,000 in London)
There may be additional eligibility conditions depending on where the property is located. This is because local councils are allowed to use their discretion to prioritise certain groups. These include:
- key workers (such as nurses)
- people who already live in the area
- those on lower incomes
How do I apply for a First Homes scheme house?
The first step is to research new developments in your area to determine if there are any First Homes scheme properties planned or already established. If there are, contact the developer to express your interest – they will then be able to guide you through the application process.
You'll need a mortgage offer in principle to be considered for a home. The mortgage should cover at least 50% of the property's price.
Your application must then be submitted to the council local to where the property is located.
The council will assess your application against the eligibility criteria and let you know their decision in writing.
If your application is approved, the next step is for you to hire a conveyancing solicitor who will proceed with the legal side of your house purchase. Your conveyancer should liaise with the developer and the relevant local council on your behalf. You should also officially apply for your mortgage at this stage.
Your conveyancing solicitor should be responsible for organising the contracts, which they will then present to the local council to review before exchanging contracts with the developer. You will also need to pay a deposit that legally commits you to buying the home.
The only remaining step is completion day – when you get the keys, and the legal ownership officially transfers to you.
What's the catch?
A key issue is that as the properties are purpose-built, they need to be constructed first, which means limited availability.
Further, there will likely be a huge demand for these homes, so there will be long waiting lists prioritising key workers and locals.
If you want to sell up in the future, you must first try to sell the property to an eligible First Homes scheme buyer. If you have no success after six months, you may then offer the property to the council to purchase before finally selling it on the open market.
Also – watch out for premiums which can come with a new-build property. If the property is over-valued in the first place, then the discount might not seem so generous after all.
What about stamp duty?
As a first-time buyer, you're exempt from stamp duty on house purchases under £300,000. If using the scheme in London, there is a chance you'll need to pay stamp duty on pricier homes.
What happens if it doesn't work out?
It's an unfortunate fact that 1 in 4 property purchases in the UK falls through before completion.
If you're worried about losing conveyancing, solicitor's fees, mortgage arrangement and survey fees if your sale doesn't go through, then relax. If you're covered by Home Buyer's Protection Insurance, you can claim these costs back, so you're not left out of pocket should something go wrong with your First Homes scheme purchase that's beyond your control.