Impact of the First Homes Scheme on Property Market
In England, the government has unveiled the First Homes scheme. Announced on June 4th, the scheme is expected to boost homeownership among first-time buyers. First-time buyers may be able to climb on the property ladder for at least 30% less than market value and in some cases up to 50% less. Key workers are the target group for the scheme.
Housing Secretary Robert Jenrick said: “Enabling more people to buy their own homes is at the heart of the mission of this government, and First Homes will offer a realistic and affordable route into homeownership for even more people who want to own their own home.
Who can qualify for the First Homes scheme?
As the name suggests, anybody who applies must be a first-time buyer. Outside of being a first-time buyer, there are several other stipulations as to who can apply.
If you have already owned a property previously, you will not be eligible. This applies to inherited or gifted properties too. If you are co-buying a property, you won’t be eligible if either you or your co-buyer has owned a property.
To qualify, you must have a combined household income of under £80,000 (£90,000 in London). If your income and savings show you could afford to buy the house without any discount, then you won’t qualify.
The requirement to have some type of “local connection” with the area where the house is located, is one of the more ambiguous requirements of the First Homes scheme. Each Local Authority will be able to create its own criteria for determining who should be prioritised for the scheme. Therefore, the criteria may differ from one location to the next. It’s still unclear what constitutes a “local connection”. It could be along the lines of whether you work in the area, have family nearby, or have lived there for a long time.
It is likely that in all areas, key workers will be prioritised. Local councils will also be in charge of determining how large the discount will be. The minimum is a reduction of 30%. However, it could be increased to 50% under the council’s discretion. As a result, being a key worker will almost certainly be a primary factor in securing a larger discount.
Price of the property
There are also restrictions on the price of the property. Only low-to-moderately priced houses in the UK will be eligible for the First Homes scheme (estimating £250,000 across England and £420,000 in London). This is to ensure the scheme is benefiting those with more average wages.
What impact will this have on the property market?
While the First Homes scheme appears to be a win scenario for first-time buyers, there is concern that demand will exceed supply. However, from the 28th of June, a minimum of 25% of all affordable housing builds should be First Homes. As a result, the homebuilding sector and demand for new builds will increase.
Reducing the supply and demand imbalance will create a sustainable marketplace for property investors. Building more homes will increase the number of renters in the market as more properties become readily available.
At the rate at which new builds are being completed, the current sharp drop in housing stock will be mitigated. Especially as these new builds are generally more expensive to buy than other properties. First-time buyers can now consider these pricier properties that may not have been accessible to them before the introduction of the First Homes scheme.
For more information, read our latest article on why new build developments are attractive to property investors.
Overall, the First Homes scheme appears to be promising for investors. The emphasis on building new properties should help to correct the supply and demand imbalance. Homeowning will become more accessible, meaning more properties are available to buy, invest in, and rent.
There is concern that this new scheme will disproportionately benefit certain areas of the country. Those living in London, where average house prices are significantly higher than in other parts of England, may experience little benefit. In other areas of the UK, the scheme is a lot more promising.
Across northern England, these new build properties will become affordable to more than half of households. As demand increases in cities in the north, more houses will be built there, and more rental properties will become available. People will choose to migrate to those areas. As discussed in our recent article, cities with a growing population will give investors the best ROI. Why not speak to one of our consultants today to secure your off-plan investment?
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