First Homes Scheme
First Homes Scheme – The Government’s New Discount Scheme For First Time Buyers
With the present Help to Buy Equity Scheme due to expire by March 2023, we analyse the Government’s latest Discount Scheme for home ownership. Homes sold under the First Homes Scheme are effectively purpose built meaning they are going to be initially new build properties.
When the property is sold in the future, an independent valuation must be carried out to assess the market value of the property at the time of resale. At this point, a new discount will be applied and so the new buyer will obtain a relevant discount to them.
What is the First Homes Scheme?
The First Homes Scheme has been introduced as a discount scheme. The discount offered ranges from thirty percent (30%) and in some cases, up to fifty percent (50%) of the current market value of a property. For instance, if a property on a particular street is up for sale at £100,000, an identical property on the same location would be offered under the scheme to be purchased anywhere between £70,000-£50,000.00.
Unlike with the Help to Buy Equity Scheme, this discount is not a loan. What this means is that you are not required to pay it back nor pay interest after the first five years. In addition, since this discount is applied directly to the property, unlike with a shared ownership property, you own the property outright and therefore, you will not be paying any ‘rent’ on the outstanding share either.
Although as with the current Help to Buy Equity Scheme, the First Homes Scheme is only available to First Time Buyers however (at least at the time of writing), the Scheme is only available in England. It is also worth noting that if a couple is purchasing the property under the scheme, both purchasers must be first time buyers.
Who qualifies for the First Homes Scheme?
The purpose of the scheme is simple; to have more first time buyers on the property ladder. As with the Help to Buy Equity Scheme or Shared Ownership properties, you will need to use the property as your only and primary residence. Therefore, you will need to be local to the property in question. An example of meeting this criteria would be that your children attending the local school. The rules however are unclear as to whether you will qualify to purchase a property under the First Homes Scheme if you are moving from elsewhere. The scheme also places special emphasis on key workers being promoted to use the scheme.
What are the other eligibility criteria that must be met to use the First Homes Scheme?
In addition to the above, you must also meet the following conditions:
- Your Household Income – Unless you live in London where your household income should be less than £90,000 a year, your household income should be less than £80,000
- Market Value – The relevant local authority has a right to set a maximum price cap to which the discount applies however Homes England states that all properties having had a discount applied should cost no more than £250,000 outside of London and £420,000 in London.
- Primary Residence – Although it may sound obvious, the property you purchase using the First Homes Scheme must be your only property and your primary residence.
- Mortgaged – The scheme is only available to purchasers using a mortgage. This means that even if you have enough cash to purchase the property outright, you must use a mortgage for at least 50% of the price of the property, once the discount has been applied.
It is worth noting that you are exempt from the local authority’s conditions of being either a local resident or a keyworker where –
- You are an armed services personal
- If you are a divorcee or the separated partner of an armed service personal
- A widow or widower of an armed services personal
- A veteran having left the armed forces and having done so no later than five years from the date of your application.
How do I apply to use the First Homes Scheme?
In the grand scheme of things, the First Homes Scheme is still very new. Therefore, finding a property being sold under the scheme isn’t as easy as when you are buying a property in the normal way such as by using property portals. Equally, although a number of transactions have now completed under the scheme, it is unlikely that any of these properties are yet available to be resold.
As a result, the starting point should be for you to contact your local property builders to find out about any new developments that they have and also of any properties they are intending to be sold under the scheme. You can also carry out internet searches to find out if any builders you are looking to contact are already offering properties for sale under the First Homes Scheme.
Once you are successful in finding a builder and a property, they will assist you to complete your application to your local authority. There maybe fees applicable which must be paid both to your builder and the local authority which may be non-refundable in the event your application isn’t successful so please of bear this in mind. It is also likely that you will be required to submit a copy of a Decision in Principle awarded to you by your mortgage lender. You may need to speak to a mortgage broker or financial advisor to help you here.
Once your application is successful, you can then proceed with the property purchase in the standard manner. How a conveyancing transaction usually proceeds is detailed in our article entitled First Time Buyer’s Conveyancing Timeline. Naturally, there will be certain exceptions to this timeline as a result of various additional steps you and your conveyancer must take in order to comply with the rules under the First Homes Scheme. Your conveyancer will explain these to you in greater detail at the relevant milestone.
Can I use any other Help to Buy Schemes in conjunction with the First Home Scheme?
The Government’s initial position is that since a large incentive is being offered under the Scheme, currently you cannot use any other Help to Buy incentives such as Help to Buy ISA or LISA when purchasing a property through the scheme.
Selling your property
As stated earlier in this article, a property purchased using the First Homes Scheme can only ever be sold to someone who themselves are eligible to purchase a property under the scheme. You can however leave your property to someone else within your Will. If the person you nominate under your Will however does not qualify under the scheme, they will then need to sell the property to someone who does.