As part of the Government’s commitment to overhaul the planning system and increase home ownership it has confirmed that it is pressing ahead with its First Homes policy, which came into force on 28 June. A new kind of affordable housing, the First Homes scheme will offer discounted properties to first-time home buyers purchasing new build properties. The guidance and ministerial statement provide details on this newest type of affordable housing and how it will be implemented.
At first reading of the guidance the terminology looks familiar to that of discount market sale (DMS) but there are some key differences, not least, the mandatory requirement (subject to some exceptions such as Build to Rent and schemes delivering 100% affordable housing) that all schemes delivered by S106 applicant contributions must now provide a minimum affordable quantum of 25% as First Homes. This will have a major impact on the type and tenure of all affordable homes now to be delivered and could therefore squeeze out tenures like shared ownership and DMS)
DMS by another name?
On the surface, the First Homes scheme may feel familiar to those accustomed to DMS. Both offer homes at a discounted rate; both are sold through the developer (unlike shared ownership that is sold by the affordable housing provider); are offered conditionally based on an eligibility criterion; and require restrictions on the title to reflect the discount.
So those who have experience with DMS may therefore have a head start on understanding First Homes and some of the processes involved such as restrictions on title, but there are some crucial differences between First Homes and DMS which the industry will need to get to grips with to ensure the success of the scheme.
Perhaps the most obvious difference is the discount itself. While DMS usually offers a discount of 20% of the market value of properties, First Homes is higher, requiring a 30% minimum discount but local authorities can require higher discounts for example, 40% or 50% but in order to increase the discount they will need an evidence base to support the higher discount so we probably will not see these greater discounts initially as they will take time to work through the system. Unlike DMS which has no price cap First Homes will have a price cap which cannot be increased of £250,000 (and £420,000 in London).
The right kind of affordable?
As applicants will be required to sell 25% of their affordable homes on a development through this scheme, this could impact viability and also housing need as the planning permission will deliver the same amount of affordable housing (the local plan policy or lower if supported by viability) so the actual amount of affordable housing will not increase – it is the type and tenure that it will be affected. With 25% delivered as First Homes the delivery of the remaining 75% affordable housing is then prioritised as social rent which in real terms could mean the squeezing out other forms of affordable housing in particular intermediate tenures. Unlike other schemes, only first-time buyers are eligible for First Homes. DMS homes, by contrast, do not have this restriction. The requirement to provide 25% of affordable housing as First Homes could also affect the demographics of certain areas – particularly places which may not traditionally be as appealing to first-time buyers.
The First Homes allocation will also influence housing need and could reduce the amount of affordable rental properties available as well as other intermediate tenures such as shared ownership which is interesting as shared ownership is a tenure that is meant to allow a first step on the property ladder (by purchase of part of the property and then allowing the purchaser to buy more equity as their finances improve or where they cannot secure deposit/mortgage for the whole of property). At a time where many local authorities are keen to increase the availability of rental housing, favouring home ownership may change the social make up of particular areas, while failing to get to the root of affordable housing need for some local authorities.
Keeping it simple
DMS is often perceived as being complicated and often requires bespoke drafting which can be costly, and time consuming. First Homes will use a standardised framework and a model title restriction has been published to ensure consistency. This should build confidence, both for local authorities in how to implement the scheme most effectively, but also for lenders, who have previously been reticent to offer mortgages on DMS homes.
With the First Homes scheme set to come into force from 28 June, and the requirement that it comprise a 25% of all affordable housing, its impacts will be felt across the industry. As with all planning changes there are greater responsibilities for the local authorities for example considering whether higher discounts are required and monitoring first sales and the restriction on title when the original purchaser sells the property but as yet we have not seen any financial commitment for local authorities to help deliver this. Local authorities are key to delivery and a key to any success will require local authorities to be supported financially otherwise they have the potential to slow the system down.
Planners, developers, registered providers, local authorities and mortgage lenders will all need to get to grips with this new scheme – and quickly – to make sure it achieves what it sets out to: helping people get on the housing ladder in their local areas.