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First Homes - an introduction to the Government's latest proposed low-cost affordable housing product

Posted: 30/06/2020


The product

The Government’s consultation on the delivery of First Homes ended in May 2020 and it is fair to say that it has caused a great deal of unease in the affordable housing sector.

First Homes will be new build flats and houses which will be sold with a discount of at least 30% percent. They will be made available to local people who want to stay or move into the community where they live or work but cannot afford homes on the open market. First-time buyers, serving and veterans of the armed forces, and key workers will be given priority to purchase a First Homes property.

The initial discount will be passed on to future buyers when First Homes are resold, so successors will also be helped onto the property-owning ladder. On any sale, the original discount must be passed on to a new eligible First Homes buyer.

Local areas will be able to set a discount of greater than 30%. First Homes must be occupied as a person’s principal place of residence (PPR) and cannot be used as holiday homes or as buy-to-lets.

Competition

It is clear the Government intends to use Section 106 to deliver and fund First Homes. This is of huge concern because they will be developing two competing low-cost home ownership (LCHO) products – shared ownership and First Homes. In its consultation, the Government has announced two options. The first is to prescribe that a percentage of affordable homes delivered through Section 106 should be First Homes and the second is that a percentage of all units on suitable sites of more than ten units are to be sold as First Homes.

In its response to the consultation, the organisation of the largest housing associations in and around Greater London, The G15, welcomed the Government’s ambition to increase access to home ownership. But it is concerned that this new product will reduce the supply of LCHO products and have an adverse impact on the supply of low rent homes.

The G15 points out that the shared ownership product is available in an established market that has seen dramatic increases in private investment. The sophisticated shared ownership market has been carefully developed by housing associations, lenders and the Government and is a tried and tested model.

First Homes will very likely lure developer and lender appetite away from shared ownership. There are concerns that a new LCHO product in this unstable market could have an adverse impact on the numbers of new build affordable homes for both rent and purchase.

The devil is in the detail

There is no doubt that First Homes will be a complicated product.

While the local planning authority will be able to direct the planning policy and set the discount and the eligibility criteria, who will administer the scheme itself? Do local authorities have the resources to be able to determine the open market value of the home in order to determine the 30% or higher discount?

Similarly, on a resale, the property will need to be revalued to calculate the discount passed onto new first-time buyers. Who can administer this? Local authorities, housing associations or community land trusts? There will have to be a robust set-up to ensure home owners do not try to avoid passing on the discount.

How will the discount be enforced? Will this be a new planning charge? Or will it be a restrictive covenant imposed on the title? Restrictive covenants can be difficult to enforce.

Not only will there have to be exceptions on sub-lettings where, for example, a person’s place of work temporarily changes or where an owner has to temporarily move to look after family but there will inevitably be further exceptions as the product develops. Which authority will be best placed to monitor whether concessions to sub-letting are granted from time to time?

Home owners will also be concerned that, after having carried out improvements to their property, the value of those improvements will be discounted on any sale.

Finally, the structure of any transactions will need to be approved by the mortgage companies which will require mortgage exclusion clauses to protect their security in the unhappy event that they repossess and dispose of the property.

Next steps

The Government has not announced when it will summarise, review and report on the responses to its consultation. We will report on this when we hear further but this announcement has introduced unwelcome uncertainty in the long-term LCHO sector.


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