First Homes scheme: Everything you need to know

The First Homes Scheme is a government initiative that gives buyers up to 50% off new-build properties. The idea is to help first-time buyers in England get on the property ladder.

The First Homes scheme is aimed at people priced out of their local area and key workers such as NHS staff, police and teachers.

It comes at a time when house prices are at record highs. The scheme will save each buyer an average of £70,000, the government says.

This article will outline:

• How the scheme works
• How to apply, and details about the price cap
• Eligibility criteria
• Other government schemes for first time buyers

What is the First Homes scheme?

The First Homes scheme was launched by the government’s Housing Secretary, Robert Jenrick, in June 2021.

The aim is to help first-time buyers get a foot on the property ladder through a discount of at least 30% of the typical market rate for the local area.

Local authorities are able to set higher discounts of either 40% or 50% at their discretion.

The scheme is part of a wider pledge from the government to build 1m new homes by 2024.

How will it work?

• Homes in the scheme are sold at a minimum discount of 30%, but local authorities can offer a discount of 40% or 50% for their area.
• A price cap applies. The price of a property cannot be above £250,000, or £420,000 in London, after the discount has been applied.
• Buyers must live in the property. It cannot be used for lets to tenants.
• When the owner wants to sell, they must pass on the same discount applied when they bought the property.
• Local authorities will not choose individual buyers, but they will set the eligibility criteria.
• The developer or seller will handle the sale of the property, but will need the council’s approval to proceed with an eligible buyer.
• The discounts will apply to the homes forever, meaning generations of local buyers will pay a reduced price.

Example

Buying the property:

House valued at: £350,000
First Homes discount: 30%
Buyer pays: £245,000

Selling the property:

House valued at: £380,000
First Homes discount: 30%
Sale price: £266,000 

Find out more: Guide to buying your first home

Who is the scheme for?

The First Homes scheme is designed for people who want to stay in the communities where they live or work, but are struggling to get on the housing ladder. 

UK house prices have soared in the past year, despite the property market grinding to a halt in the early days of the coronavirus pandemic. Average prices in the UK rose by 8.9% in the year to April, according to the latest official data from the Office for National Statistics.

The First Homes scheme aims to make property more affordable to people on lower incomes, putting home ownership in reach.

The scheme is primarily aimed at key workers who provide an essential service.

This could include nurses, police officers, teachers, delivery drivers and supermarket staff, as well as serving members and veterans of the armed forces.

The definition of a key worker will be determined locally and could be anyone who works in a job that is considered essential for the functioning of an area.

Local authorities can use a “local connection” test to decide which people – perhaps nurses or teachers – should have priority for the new First Homes.

Eligibility criteria

Applicants must:

• Be a first-time buyer.
• Have a household income of no more than £80,000 a year (£90,000 if applying in London).
• Be able to pay a deposit of at least 5% of the discounted purchase price.
• Use a mortgage to fund at least 50% of the purchase price (so you can’t be a cash buyer).
• Live in England (the scheme is not available in Scotland, Wales or Northern Ireland).

How much deposit would I need?

A deposit of at least 5% is needed when applying for the First Homes Scheme.

There is no separate lending scheme for First Homes. Buyers will go through the standard property sales process and have access to conventional mortgage products.

Halifax, Nationwide Building Society and Leeds Building Society are among lenders that have said they will offer mortgages for homes bought through the scheme.

Examples of upfront money required:

Purchase price: £210,000
Deposit required: £10,500 minimum (5%)

Purchase price: £250,000
Deposit required: £12,500 minimum (5%)

Buyers can use the government’s new 95% mortgage guarantee scheme to help them make a property purchase.

The scheme was launched in April 2021 to encourage banks and building societies to lend money to people who cannot afford a big deposit.

Most lenders stopped offering 95% loan-to-value mortgages following the outbreak of the pandemic, amid fears that borrowers might overstretch themselves at a time of economic turmoil. 

The 95% mortgage scheme guarantees that lenders will be compensated for any losses they may incur if the home is repossessed and there is not enough money from the sale to repay the mortgage debt.

Lenders participating in the scheme must offer a five-year fixed-rate deal to borrowers, giving them peace of mind over their monthly interest repayments.

Find out more: How to get your first mortgage

When will the scheme launch?

The First Homes scheme launched in June, and is currently being offered on a limited number of plots in most new developments.

The scheme is only available on new-builds, and more will become available as the properties are constructed.

The government says about 1,500 will become available from the autumn, with the eventual aim of delivering at least 10,000 homes a year.

How do I apply for the scheme?

There is no national website or portal you can use to apply for a First Home, so you need to research which developers are taking part in the scheme.

Once you find a developer offering discounted homes in your area, you will need to apply through the builder. 

There is no application deadline. It is open to eligible applicants whenever plots become available.

Considerations

Bear in mind that you still need to obtain a mortgage to finance the purchase of a First Homes property. 

Most lenders will lend up to 4.5 times your annual income, so this needs to be considered when working out whether you can afford the purchase price.

According to the estate agent Savills, the average household income needed to buy a two-bed First Home in London is over £50,000, and across the rest of England the average is £34,125.

Mortgage lenders will also take into account your credit score, so check that your own score is accurate and the best it can be before applying for a mortgage.

Your credit report can be checked for free with any of the three main credit agencies – Equifax, Experian or TransUnion.

It is also not yet clear what qualifies as a “local connection”. A local authority is able to set its own criteria for this, so contact your council for more information.

They may want proof you have lived in the area for a certain number of years, or you may have to be working in the area to qualify.