First Homes, a new solution to the first-time buyer crisis, will be relevant to the majority of new schemes from December 28. Property investors will invariably see an impact on values and viability, but the full of the extent of the change will not become apparent until several outstanding issues are addressed.
First Homes are a brand-new form of Discount Market tenure. The objective of the policy is to enable more first-time buyers to get a foot on the property ladder. Home ownership among younger age groups is at an all-time low and so inevitably, the impact will be wide-ranging: at least 25% of all new affordable homes are to be delivered as First Homes.
To be eligible, purchasers must have a joint household income of no more than £80,000 (£90,000 in London) and must have a mortgage to fund at least 50% of the discounted purchase price. Local authorities can also apply additional eligibility criteria including local connection tests, although this will be waived in the case of active members of the Armed Forces and veterans.
The cost of the discount must be borne by developers as a planning obligation and the homes must be sold with a minimum discount of 30% against the market value – a discount which must be applied to all future sales.
Determining a site layout after December 28 will be affected in most cases. The requirement for approximately 5-15% of all units to be First Homes (assuming a 30-40% affordable housing requirement) may mean lower demand for open market homes suitable for first-time buyers, and so a new development may require fewer two and three bedroom homes in relation to larger house types.
The following example shows how the introduction of First Homes would apply to a typical residential scheme. If an existing Local Plan Policy requires an affordable mix of 40% Social Rent, 40% Affordable Rent and 20% Shared Ownership, then following the introduction of First Homes, the new Local Plan Policy requirement would be: 25% First Homes, 40% Social Rent, 23% Affordable Rent, and 12% Shared Ownership.
The proportion of Social Rent to be delivered should be in accordance with existing Local Plan Policies (up to a maximum of 75%) once First Homes have been provided. The remaining tenures should reflect the ratios in the Local Plan - in this example, 40% Affordable Rent and 20% Shared Ownership or a ratio of 2:1. After 25% First Homes and 40% Social Rent provision, this results in the 2:1 ratio being applied to the remaining 35% provision resulting in a 23% Affordable Rent and 12% Shared Ownership provision.
Cleary, the provision of First Homes will require some adjustment, not only in the case of developers who will need to consider the viability of new sites in light of the 30% discount and make plans for marketing and selling the properties. Local authorities will need to update their affordable housing requirements and determine whether additional eligibility criteria should be applied. Registered providers may also see a downturn in the number of shared ownership properties being delivered.
Despite some considerable initial momentum, the momentum behind First Homes appears to be lagging and there remain some significant unresolved issues.
Perhaps most notably, July’s revised NPPF made no mention of First Homes, in fact it conflicts with the recently published Planning Practice Guidance, causing uncertainty for local authorities, developers and RSLs.
In the guidance, the government undertook to provide template planning obligations for local authorities to use when preparing Section 106 Agreements. It was anticipated that this would be made available substantially in advance of First Homes being implemented. However, this remains outstanding.
A model title restriction for the purposes of the Land Registry has been published, but until the template becomes available, there is little to inform Section 106 Agreements put in place from December 28 and no scope for local authorities to update standard drafting.
There are also questions surrounding strategic planning, specifically for those Local Plans which are submitted for examination around the cut-off date, and in cases in which a Neighbourhood Plan qualifies for an exemption but the local planning authority in which it is located does not. In such circumstances, developers facing considerable uncertainty are opting for sites outside the borough – and consequently perpetuating the lack of housing, both affordable and otherwise.
Introducing the policy in May, the government stated that it is: ‘determined to ensure that there is an adequate supply and variety of options to help hard-working people onto the housing ladder across England’. The irony is that without the intervention, developers and local authorities would have more certainty of their requirements and more homes would be delivered as a result.
First Homes is set in legislation: there is no going back, but much needs to be done, urgently, to enable it to move forwards.
*Michelle Quan is an Associate Director at Boyer with over 10 years’ experience in the public and private sector. Michelle works on a variety of projects but specialises in securing residential planning permissions in the Thames Valley.