So far starter homes have been a bit of a none-starter due to all the uncertainty surrounding eligibility criteria and resale restrictions.

With the housing bill going back and forth like a yo-yo over the last few months it looks as though it is finally getting nearer to being finalised.

So let’s take a look at the proposed changes and how they will affect you as a developer.

Change to resale limits of starter homes

  • Limits to when an owner of a starter home can sell their property for the full market value has been changed from 5 to 8 years.

Effect on the developer

  • This could potentially decrease the number of buyers interested if people are looking for a property to live in for less than 5 years.
  • A number of lenders have also said they would be unwilling to lend on starter home schemes because of this short term limit on the resale value, which could make it more difficult for developers to sell properties once completed.

Change to starter home allocation for developments

  • Developers will be required to allocate 20% of any developments over 10 units for starter homes.
  • However there may be exemptions where it is not viable to include starter homes in a development or where they have been built specifically for rent i.e. PRS.

Effect on the developer

  • The 20% incentive will help to initially draw buyers but this could also cause an influx of people selling after 5 or 8 years (whichever is decided in the final bill) which would only act to deflate house prices and potentially lead to another market crash.
  • It could also affect the perceived value of full price properties if developers are forced to sell 20% of properties at 80% of the market value when they are exactly the same. Thus having a knock on effect on cash flow.

Change to give councils greater authority

  • Councils will be allowed to decide the percentage of starter homes required based on local needs.

Effect on the developer

  • Local authorities should have a better idea of demand in the area therefore helping developers to provide the correct supply of housing to suit this demand.

Change for rural areas

  • Rural exception sites, i.e. ones set aside for dedicated affordable housing, will be exempt from the 20% starter home requirements.

Effect on the developer

  • This should help to cater for the needs of rural areas where starter homes may not be the correct housing model and in fact affordable homes would be more suitable. If rural exception sites were not excluded from the requirements developers could face having developments left empty where buyers are unable to afford even the starter home price.

Change to eligibility criteria

  • Eligibility criteria for starter homes to be changed to 23-40 year olds looking to buy their first home, therefore excluding people under 23.

Effect on the developer

  • This would limit the target market for eligible buyers further and could decrease demand when developers try to sell. Although this is a very small percentage of the market and shouldn’t have too much of an effect on developers.

As you can see starter homes could help sell homes initially but the reduction in price for the same property being sold at full market price could devalue the development as a whole.

However with funding schemes like the Starter Home Lands Fund to help local authorities prepare brownfield sites for construction and the Starter Homes Initiative for developers to purchase such sites, there is still potential for this to help build the homes we so desperately need.

By Anna Symington

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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