First Homes – what the new affordable scheme means for developers

The Government has published more details on the implementation of the First Homes scheme, with the first houses to be included from June 2021.

New local authority development plans, including local plans and neighbourhood plans, will take account of the new First Homes requirements from 28 June 2021.

Sites with planning (or right of appeal) already in place, or determined before 28 December 2021 will be exempt, which is extended to 28 March 2022 for sites where “significant pre-application engagement” has occurred.

How the First Homes scheme will work

A minimum of 25% of all affordable housing units secured through developer contributions will be First Homes. This is a national threshold which will be applied across England. The discount will be set by the local authority but will be a minimum of 30% off market value.

To calculate how that discount could be increased, a further stipulation is that after the discount has been applied the first sale of the home must be at a price no higher than £250,000 (£420,000 in Greater London).

To avoid profiteering, a planning obligation will require the same level of discount as a percentage below market value must be applied to the home each time it is sold in future, subject to a few exclusions.

First Homes will be prioritised for first-time buyers and further restricted to households with a combined annual income in excess of £80,000 (or £90,000 in Greater London). Local authorities will be able to apply other “local” tests or exemptions to armed forces members or veterans.

Developer contributions for First Homes

Supported by a “model” Section 106 agreement, a minimum of 25% of all affordable housing allocations will be sold under the First Homes. Equally, a minimum of 25% of cash contributions in lieu of affordable housing (where used) will be used to secure First Home allocations elsewhere.

The proportion of affordable housing will exclude taking social rent homes into account. In other words, the 25% will be calculated as a proportion of other affordable tenure types, such as shared ownership or affordable rent. The aim is to “ringfence” social rent homes, so First Homes are an addition and do not reduce homes created for social rent.

Developers of First Homes will be able to obtain an exemption from the requirement to pay the Community Infrastructure Levy.

The Government has published full guidance on its website.

An update on the shared ownership model

More details were revealed on the timing of the Government’s new model for shared ownership, which will be delivered through grant funding and the planning system.

The model will come into effect on 28 June 2021. This means that:

  • The minimum share for initial shared ownership purchases will be reduced from 25% to 10%
  • New owners can staircase in 1% increments for 15 years. Larger increments will be possible with the minimum additional share purchase reduced from 10% to 5%

Information on this and the First Homes scheme was shared in this written statement to Parliament.

Observations about the First Homes scheme

Property experts Savills analysed the numbers involved in the First Homes scheme. It concluded that from a developer viability perspective, the Gross Development Value of a First Home would typically sit somewhere between shared ownership and affordable rent.

It also warned that value and income caps might prove “a major constraint” in London and parts of the south east, applying pressure to developers on their ability to meet recommended space standards.

You could read their summary here.

 

Please Note: Every care was taken to ensure the information in this article was correct at the time of publication. Any written guidance provided does not replace the reader’s professional judgement and any construction project should comply with the relevant Building Regulations or applicable technical standards. However, for the most up to date LABC Warranty technical guidance please refer to your Risk Management Surveyor and the latest version of the LABC Warranty Technical Manual.

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