Introduction of First Homes

Today marks the official introduction of the Government’s First Homes programme which aims to deliver a new form of affordable home ownership to help first time buyers on to the property ladder.

We explore what First Homes are, what the policy changes mean in practice, how the new requirements are likely to be applied, and the potential challenges ahead.

What are First Homes?

First Homes build on the National Planning Policy Framework requirement for at least 10% of the homes delivered on major sites to be available for affordable home ownership. First Homes are a specific type of discounted market sale housing that are intended to allow people to get on the housing ladder in their local area. They fall within the definition of affordable housing for planning purposes.

First Homes must meet the national standard criteria below:

• A home discounted by a minimum of 30% against the market value¹;
• After the discount of the home has been applied, the first sale² of the home must be at a price no higher than £250,000 (or £420,000 in Greater London)³;
• The home will have a restriction registered on title at HM Land Registry to ensure the same percentage discount of current market value is passed on at each subsequent title transfer; and
• Must be sold to a person or persons meeting the First Homes eligibility criteria.

Eligibility Criteria for First Homes

First Homes are prioritised for first time buyers needing a mortgage. First Homes must not be sold to any household with a combined annual income exceeding £80,000 (or £90,000 in Greater London). This also applies to future sales of First Homes.

Additional criteria may be applied at a local level, for example setting lower household income caps, prioritising key workers, or requiring a local connection to the borough in terms of work or residency. Such eligibility restrictions would be time-limited to the first three months from the start date of marketing of the property.

What are the Requirements to Deliver First Homes?

Planning Practice Guidance (PPG) confirms that First Homes are the government’s preferred discounted market tenure and should account for at least 25% of all affordable housing units delivered.

First Homes will be secured through a Section 106 Agreement. The Government are preparing model S106 obligations which can be used to secure First Homes (not yet publicly available).

Application of First Homes with other Affordable Requirements

Once the 25% minimum requirement for First Homes is accounted for, social rent homes should be delivered in line with local policy requirements, followed by delivery of other tenures as per local plan policy (secured in the relative proportions set out in the development plan). The PPG provides two examples of how this should be applied:

• if a local plan policy requires an affordable housing mix of 20% shared ownership units, 40% affordable rent units and 40% social rent units, a planning application compliant with national policy would deliver an affordable housing tenure mix of 25% First Homes and 40% social rent. The remainder (35%) would be split in line with the ratio set out in the local plan policy, which is 40% affordable rent to 20% shared ownership, or 2:1. 35% split in this way results in 12% shared ownership; and 23% affordable rent.
• if a local plan policy requires 80% of units to be shared ownership and 20% to be social rent, a policy compliant application would deliver 25% First Homes units, 20% social rent and 55% shared ownership.

Transitional Arrangements

Local Plans that are submitted for examination before 28 June 2021 or those that have reached publication stage by this date (and submitted for examination by 28 December 2021) will not be required to reflect the First Homes policy requirement. We expect the First Homes policy requirement will therefore take some time to filter through into development plans.

Guidance confirms that the First Homes requirement does not apply for:

• sites with full or outline planning permissions determined before 28 December 2021;
• applications for full or outline planning permission where there has been significant pre-application discussion which are determined before 28 March 2022.

Applicants can seek to secure the delivery of First Homes within development schemes from today, however the transitional arrangements only leave limited time to secure planning permissions (and finalise S106 Agreements) for schemes not providing First Homes before 28 March 2022.

Other Considerations

The First Homes requirement will not apply to applications made under Section 73 of the Town and Country Planning Act (1990) unless the amendment or variation specifically relates to the proposed quantity or tenure mix of affordable housing.

The NPPF confirms that where the site or proposed development provides solely for Build to Rent homes it is exempt from the requirement to provide affordable home ownership products (such as First Homes).

CIL Regulations brought into force on 16 November 2020 allow developers of First Homes to obtain an exemption from the requirement to pay CIL, in line with other affordable housing products. As such mandatory social housing relief can apply in respect of dwellings where the first and subsequent sales are for no more than 70% of their market value.

Guidance from Local Planning Authorities

As identified above, Local Planning Authorities (LPAs) and neighbourhood planning groups can set higher levels of discounts for First Homes, impose lower price caps, and introduce additional eligibility criteria. The PPG advises that these changes are determined through the plan making process, having regard to local income levels, related to local house prices and mortgage requirements. As such evidence base documents to support alternative criteria for First Homes will need to be prepared to support any deviation from the minimum national requirements.

The Ministerial Statement requires LPAs to make clear how existing policies should be interpreted in the light of First Homes requirements, and to review the tenure mix for the remainder of the affordable housing that they are seeking to secure. As a result of the new priority to deliver First Homes, and the second priority being delivery of social rented homes, it Is likely that other intermediate affordable tenures (such as Shared Ownership) will be squeezed out of Council’s target tenure splits.

It is anticipated that both the interim policy statements explaining how the First Homes requirement will be applied, and the evidence-based reviews determining appropriate discounts, price caps and eligibility criteria, may take some time to materialise and result in delays to plan-making and decision taking. Early discussions with relevant LPAs are recommended in order to understand their preferred approach to the implementation of First Homes.

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Footnotes:

¹Local Planning Authorities (LPAs) will be able to set a higher level of discount at either 40% or 50%, subject to demonstrating need for this through evidence.
²The price cap only applies to the initial sale and not to any subsequent sales.
³LPAs can impose lower price caps, subject to demonstrating need for this through evidence.

References:

Planning Practice Guidance - https://www.gov.uk/guidance/first-homes
Ministerial Statement - https://questions-statements.parliament.uk/written-statements/detail/2021-05-24/hlws48