The government has announced a new scheme called the First Homes Initiative which could give first time buyers in England discounts of at least 30% and up to 50% on their first home.
With the average UK house price now exceeding £250,000, the new scheme could save buyers over £100,000.
The aim of the scheme is to help buyers purchase homes in their local areas, many of whom may be key workers such as delivery drivers, NHS workers and supermarket workers. Despite being on the frontline of the Covid-19 pandemic, it is these types of workers that have been hit hardest by the house price boom over the past year. It was recently reported that keyworkers are priced out of homeowning in 98% of Great Britain.
It is hoped that the First Homes Initiative can reverse this trend and support more first time buyers than ever get on the housing ladder.
However, some say that the scheme will just spark a rush for new build homes and drive house prices up even further.
How does the First Homes Initiative work?
First time buyers will be able to apply for a discount of at least 30% off the market price of a new build home. Local authorities will be allowed to offer a bigger discount of either 40% or 50% if they can demonstrate a need.
This discount will be passed on when the house is sold again, allowing future first time buyers to also benefit from a below market value home.
The scheme should help people who:
- Are struggling to raise a deposit for a market value home (typically, buyers are expected to raise at least a 10% deposit, although 95% mortgages are becoming increasingly available).
- Do not have a high enough income to satisfy mortgage lenders’ affordability criteria to get a mortgage on a house at market price.
The current target under the scheme is to deliver at least 10,000 ‘First Homes’ a year, and more if there is demand. At present, the scheme is in its ‘early delivery’ phase with discounted homes only being available in Bolsover Derbyshire. However, a further 1,500 should become available in autumn. Eventually, buyers all over England should be able to benefit.
Who is eligible for the discount?
To be eligible for the scheme, you must:
- Be a first time buyer.
- Have a combined annual income of no more than £80,000 (£90,000 in Greater London).
There are also price caps on the value of the property you can purchase through the scheme. After the discount has been applied, you cannot pay more than £250,000 or £420,000 in Greater London.
People who can afford to buy a discounted home without a mortgage will not be able to apply. Discounted homes also cannot be purchased as investments – they must be used as the buyer’s home.
Why is the First Homes Initiative needed?
Despite often being described as the lifeblood of the housing market, for years first time buyers have faced an increasingly hostile market. Even before the Covid-19 pandemic, rising house prices, faltering wages, a lack of housing stock, strict mortgage lending rules and competition from investors and wealthier home owners have priced first time buyers out of the market.
Over the years, the government has introduced a range of schemes and incentives to help first time buyers, such as the Help to Buy scheme and 100% Stamp Duty relief on purchases up to £300,000.
However, these schemes have not addressed the core issues and the coronavirus pandemic has only made the situation worse. The Stamp Duty holiday, introduced in July 2020 to stimulate the market during the pandemic, is said to be the main culprit for house prices rising by a record 10% over the past year.
But because first time buyers are already mostly exempt from Stamp Duty, many have only suffered the negative effects of the pandemic’s impact on the housing market.
Will the First Homes Initiative help first time buyers?
A discount of 30%-50% on the market price of a home will undoubtedly be a lifeline for many first time buyers.
If you have the opportunity to purchase a home through the scheme, it is well worth considering and seeking further advice.
Concerns about the scheme are not to do with the impact on individual buyers, but on the wider market. Many are rightly concerned that demand will far exceed supply – the government has consistently missed its own house building targets and the scheme is only available for new builds.
It is anticipated that the scheme will cause “a scramble for properties… as they become available”, particularly as first time buyer interest has recently been renewed thanks to the Mortgage Guarantee Scheme and the greater availability of 95% mortgages.
Ultimately, demand for the scheme could end up pushing house prices up further, pricing other buyers out of the market. However, it remains to be seen whether this is actually the case.
Do you need advice about buying your first home?
We can handle all the legal aspects of your transaction on your behalf, making the process as simple, straightforward and stress-free as possible. We can provide advice about buying a home through all types of first time buyer schemes, including the new First Homes Initiative, Help to Buy and Shared Ownership.
Get a conveyancing quote online to see how much your transaction is likely to cost, then a member of our conveyancing team will be in touch shortly.