Head of Content
Mortgage Advisor & Director
What is the First Homes scheme?
The First Homes scheme was launched in June 2021 to help first time buyers and key workers across England to own their own home.
The scheme offers eligible buyers a discount of up to 30% on their new home, based on market value. For the average buyer, this equates to a considerable saving of £70,000 based on the average property price in the UK. In certain areas where housing is more expensive, the discount can be as high as 50% as local authorities can elect to offer additional discount.
The property price - after the discount has been applied - must be no higher than £250,000 or £420,000 in London. This means that the maximum property value based on a 30% discount will be £357,143 or £600,000 for London.
Under a particular type of restrictive covenant called a section 106 agreement, the discount will stay with the home, being passed on to future potential buyers.
The First Homes scheme summarised:
- New build houses and flats are sold with a discount of at least 30%
- After the discount has been applied, the first sale must be no higher than £250,000 or £420,000 in London.
- First time buyers, key workers as well as current and ex-armed forces people will be eligible
- Applicants must have a household income that does not exceed £80,000 or £90,000 in London.
- Designed for people who are keen to buy in the community where they live but are priced out of the market
- The discount is passed on to future buyers
How does the first home scheme work?
The scheme will offer eligible buyers a discount of at least 30% based on market value when buying a new build home.
For example, for a property worth £250,000, this means the buyer will receive a minimum discount of £75,000, meaning they will be buying the home for £175,000. This discount will make a massive difference to the ability of the buyer to find a mortgage and save for a deposit, making homeownership achievable.
When the buyer decides to sell the property, this discount of 30% will stay with the home as a percentage of the property's value rather than the original financial discount. In our example, this means that if the home sold for £300,000 in ten years, a discount of 30% would equate to £100,000, meaning that the seller would receive £200,000 in proceeds.
The new buyer will also need to be an eligible key worker or first-time buyer to go ahead with buying the property.
What deposit will I need to buy a first homes property?
As the property has already been discounted by 30%, the lender may not ask for a deposit at all, as per the Right to Buy scheme.
Whether or not you'll need to pay a deposit on the first homes property will largely depend on the lender, your risk as a borrower and the property itself. As a key worker, you are likely to have the type of long-term, stable income that is favourable to lenders; however, the same may not be true for many first time buyers.
As a first time buyer, lenders may be more interested in you as an applicant and could ask for a deposit to reduce the mortgage's loan-to-value and mitigate some of this risk. In addition, if you have a strong credit history, this can also help demonstrate your reliability as a borrower.
When does the first home scheme start?
The first home scheme starts on 28th June 2021, although it's likely that the properties themselves will still be in the build phase at this point.
Who is eligible for the first home scheme?
The first home scheme is open to first-time buyers and key workers such as nurses, doctors, teachers and armed forces personnel.
To qualify, you must also be able to get a mortgage for at least 50% of the discounted purchase price of the property - meaning that you should also meet the lender eligibility criteria, which will vary by lender.
Applicants should have a household income that does not exceed £80,000 or £90,000 in London in the tax year preceding the purchase.
How to apply for the first homes scheme
To apply for the first homes scheme, you'll need to find out which developments are offering the scheme and apply directly through the builder. You'll also need to start considering mortgage options.
For purchasing a first homes scheme home, we would recommend engaging an experienced mortgage broker. Not only will they know the right lenders to approach, but they'll also be able to boost your chances of mortgage approval.
At Teito, we've helped many first time buyers and key workers to find the perfect mortgage for them. We work with hundreds of lenders offering thousands of mortgages, meaning that you'll have the best chance of getting the right deal. We've streamlined mortgage applications, eliminating the time-wasting steps and leaving a stress-free and straightforward process. Get started now and start comparing deals in minutes!
Choosing an Adviser
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Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.
