The Government's First Homes Scheme

An article by Kunle Awofeso

Associate Director (Project Manager)

The Government’s proposed First Homes Scheme is a laudable initiative-providing yet

another route to home ownership ( in addition to the Help to Buy & the Shared Ownership

Scheme). See document below.....

Guide_to_First_Homes

.pdf

Download PDF • 252KB

.

The First Homes scheme provides for 30% discount for applicable homes against the OMV, a discount locked into the property in perpetuity. This allows future eligible home buyers (key workers, & others with strong local community links) to have access to the discount into the future as the homes are sold on. If the government’s plug in Mortgage Protection Scheme is favourably received by lenders, then all good and the principle is sound up to that point!

The mechanism being proposed for its implementation however may well undermine the

realisation of the envisaged benefits & there is also a potential for market distortion.

The controls proposed by the government- income caps; regional property value caps; time

limitations for marketing as First Homes; 25% of affordable home provision being First

Homes; Local Authority powers to demand higher discounts of up to 50% etc , I suspect, will come together to create a few challenges, namely:

1: Aligning developer’s normal S106 contributions to the 25% affordable provision at 30-50% discount. I suspect the quantum of the discount to be borne by developers will be more than the equivalent S106 contributions - especially on larger schemes. Can this drive up the sale prices of some market sale units? For the early delivery pilot scheme of 1500 dwellings, grant funding to developers will be capped at the 30% discount value. So, what happens where a Local Authority requires a higher % discount?

2: The 3-month marketing window, beyond which the properties can be sold in the open

market is a loophole which developers are likely to take advantage of. What is the litmus

test for assessing ‘active marketing’ by developers during the 3-month period? As mortgage offers are typically open for 6 months, when are developers required to launch marketing? Should the marketing period be 6 months instead?

3: If First Homes are defined as affordable homes, the remaining provision of affordable

homes will be at 75% of what would have been provided under the current regime. In short,

there will be less affordable rent and/or Shared Ownership homes available moving

forward. How attractive will typical developments be for Housing Associations looking for

additionalities to secure grant funding? Will there be less developer appetite for

additionalities and what does this mean for Housing Association take-up?

4: Critically, except this scheme arrests the perennial exponential rise in house prices (which I doubt it will), then regardless of any locked in discount, the fundamental issue of

real affordability will remain further down the line, with largely stagnant incomes relative to

inflation & rising property prices. So, will this scheme still provide benefits realisation in 10-

20 years? Unlikely!

5: Local Authorities assessing eligibility and negotiating the level of discount in each region can create administrative, overheads & resource challenges for local Authorities. How will local authorities be propped up to provide these services effectively? What is the true cost of enabling this?

6: The 2-year allowance for First Time owners to let out their property under certain

circumstances is a massive loophole which will be a challenge for local authorities to

administer and police. It is possible for owners to rent out for two years, have a live-in gap

for a period then rent out again ... and on goes the cycle it seems. The government really

needs to plug this loophole.

7: With focus on key workers , there is an ambiguity in how key workers selling their current

homes and buying under the First Homes Scheme should be treated. How does this fit into

the definition of “First Time Buyers’’ under the Affordable Housing Programme? Surely a

massive loophole and it would make sense to ensure qualifying first-time buyers are truly

first-time buyers (& perhaps subject to limited well defined exemptions to promote the

localism agenda of the First Homes Scheme).

8: Finally, there is the issue of ensuring the design and fit-out specifications of First Homes

are robust and equivalent to the market sale dwellings. I suspect it is likely that a two-tier

product quality may well emerge – at least for the internal fit-out specifications – with First

Homes being on the lower tier. How will the government ensure quality equivalence?

There are a few challenges ahead and I hope the government will look critically at the

implementation mechanism prior to launching the pilot of 1500 First Homes this summer.

Supporting Local Authorities directly to build more homes is, in my view the most effective

antidote to housing provision & affordability crisis. Local authorities own significant land

assets which can be unlocked for affordable housing programs to serve local communities.

The First Homes scheme will probably have a better success rate with Councils Building (more) Homes.