Setting the scene
The Government’s new scheme for affordable home ownership, First Homes, is gaining momentum in the homebuilding industry due to the March 28, 2022 transitional date, which made it a requirement for new planning applications to consider provision for implementation on outline and full planning consents.
We have yet to see the tapering-off of Help to Buy following the scheduled withdrawal of that scheme in April 2023. While both schemes are in operation, Tom Ryan, graduate planner for Savills Reading, takes a look at the key differences between the two schemes designed to assist first-time buyers who wish to take an initial step onto the property ladder.
What do the facts say?
| Help to Buy (equity loans) | First Homes |
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Type of Incentive… A five-year interest free equity loan to boost your deposit value (has to be repaid at a later date). |
Type of Incentive… A type of discount which does not have to be repaid at a later date (property has to be sold later at the same discount). |
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Benefits Offered… Benefits stipulated around the deposit value. Only a five per cent deposit is needed, with a 20 per cent equity loan, subsidised by the Government to equate to a mortgage of 75 per cent loan-to-value. |
Benefits Offered… Benefits based on property price (discount of 30-50 per cent of market value). |
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Scheme Utilisation… Can only be utilised on new-builds to first time buyers. It subsidises individual buyers (where a property can later be sold at market value) and therefore the subsidy effect is lost upon resale. The scheme is therefore not available to the second-hand market. |
Scheme Utilisation… Introduction to be through new-builds but tenure and discount on property value is kept in perpetuity. Prospective purchasers will therefore have to be first time buyers and meet the eligibility criteria which differs by local authority. |
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Eligibility Cap? No earnings eligibility cap. |
Eligibility Cap? Earnings eligibility cap per household of £90,000 in London and £80,000 for the rest of England. |
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Value Cap? Property price value cap is regionally specific – London: £600,000, South East: £437,600, North East: £186,100. |
Value Cap? Property price value cap of £420,000 in London and £250,000 for the rest of England after the discount is applied. |
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Ownership Type… Full ownership. Government has an equity share up of to 20 per cent (up to 40 per cent in London), until you repay the equity loan. |
Ownership Type… Full ownership (at a permanent discount from open market value). |
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Market Restrictions… Scheme is only available through Help to Buy registered homebuilders, but property can be bought in any area in England. |
Market Restrictions… Incentives to local authorities making First Homes only available to buyers in their local area. |
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Policy Requirement for local authorities? No development provision requirement set. |
Policy Requirement for local authorities? There is a requirement for 25 per cent of the total affordable housing provision delivered through developer contributions to be First Homes. |
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Buyer Restrictions… Must be the buyers’ only home and a minimum of five per cent deposit, with mortgage covering at least 75 per cent of purchase value, is required. |
Buyer Restrictions… Must be the buyers’ only home and a mortgage covering at least 50 per cent of purchase value is required. |
So what do these differences mean?
The spatial impact of both schemes is notably different, with First Homes seeking to limit choice to location and Help to Buy limiting the choice to product. On one hand, First Homes will create a more diverse product range of affordable housing as the scheme isn’t limited to homebuilders who are registered as Help to Buy providers.
On the other hand, the lower property value caps for First Homes could limit provision for a wider mix of affordable family housing (especially in the more affluent areas). The table below shows the local planning authorities (LPA) within the Thames Valley which have made First Homes a policy requirement.
| Local Planning Authority | First Homes Policy | Emerging First Homes Policy | No Policy Indication |
| West Berkshire | ✓ | ||
| Reading | ✓ | ||
| Windsor & Maidenhead | ✓ | ||
| Wokingham | ✓ | ||
| Bracknell | ✓ | ||
| South Oxfordshire | ✓ | ||
| Vale of White Horse | ✓ | ||
| Slough | ✓ |
It is however noticeable that First Homes will open the door to less affluent households which don’t have the cash deposits required for the Help to Buy scheme.
What about when owners want to move on?
There is also a question as to what happens after you purchase your First Home and want to move on up the property ladder. The Help to Buy scheme offers more clarity here as the logical progression is to claw back the full property value of your Help to Buy home by paying-off the loan and enabling the buyer to own a property which reflects the full open market value upon sale.
First Home buyers also need to be aware of the restrictions that apply in perpetuity. When they come to resell the home, the discount will be passed on to the purchaser and the purchaser must meet the local authority defined eligibility criteria.
There is currently no option for a full market price buy-back clause. Will the value difference between the discounted price of your First Home and the full market price of the property you wish to buy be too great for future progression up the property ladder?
Only time will tell if First Homes becomes the missing tool to bridge the affordability gap in the increasingly unaffordable property market.
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