First Homes – a new tenure of affordable housing

26 May 2021

The Government have issued a Written Ministerial Statement (24 May 2021) and  amended the Planning Practice Guidance (PPG) to confirm the requirement for First Homes as part of new development proposals.
 
So what is a First Home?
First Homes fall under the category of ‘affordable housing’ and are discounted market sale housing, specifically, they should be:
  1. Discounted by a minimum of 30% against market value (based on a red-book valuation)
  2. Sold to a person meeting the eligibility criteria, i.e. a first time buyer
  3. Be restricted on the title of the property, to ensure this discount is applied to subsequent sales
  4. The price should be no higher than £250,000 (or £420,000 in Greater London), once the discount has been applied.
Crucially, First Homes should account for at least 25% of all affordable housing units delivered by developers through planning obligations.
 
Eligibility
Purchasers must be first-time buyers (as defined in paragraph 6 of schedule 6ZA of the Finance Act 2003). Purchasers must not have a combined annual income exceeding £80,000 (or £90,000 in Greater London) and purchasers must have a mortgage to fund a minimum of 50% of the discounted price. Local planning authorities and neighbourhood planning groups are also able to apply additional eligibility criteria, although this will only apply for an initial marketing period of 3 month, at which time it will revert to the national requirements.
 
Plan and decision making
A minimum of 25% of all affordable housing units secured through developer contributions, should be First Homes (and secured in a section 106 agreement). This is expected to be delivered on-site (subject to the standard negotiations). However, Local Plans and Neighbourhood Plans are able to increase the requirement if proven necessary.
 
CIL relief can by applied for where the first and subsequent sales are for no more than 70% of the market value.
 
Transitional arrangements

Local Plan making
 
Local Plans will be expected to set policies for the amount and type of affordable housing to be provided, reflecting the requirement for 25% First Homes. The First Homes Written Ministerial Statement (24 May 2021) confirms that local plans and neighbourhood plans that have reached advanced stages of preparation will benefit from transitional arrangements; where they have been submitted for examination before 28 June 2021, or reached publication stage by 28 June 2021 and submitted for examination by 28 December 2021, they will not need for reflect First Homes requirement (until such a time further guidance is published).
 
Importantly, the Ministerial Statement also confirms that in areas where Local Plans are adopted under these transitional arrangements, the First Homes requirements do not need to be applied.
 
Decision taking
First Homes will not apply to:
  • Sites with full or outline planning permission in place or determination (or where a right to appeal against non-determination has arisen) before 28 December 2021;
  • Applications for full or outline planning permission where there has been significant pre-application engagement and which are determined prior to 28 March 2022; and
  • Sites where local and neighbourhood plans are adopted/made under the transitional arrangements.
  • S73 applications, unless the proposed amendment relates to the quantity or tenure of affordable housing mix.
However, where the development plan policy is adopted outside the transitional arrangements, it is expected that development should provide a policy compliant level of social rented units, 25% First Homes, and the remaining split provided as a ratio defined in the latest affordable housing policy.
 
Lender protection
The PPG requires that a Mortgagee Exclusion Clause should be present in all planning obligations securing First Homes. This will protect lenders and ensure competitive lending rates for purchasers. It enables lenders, in the event that they are enforcing their security against the property, to sell it free of First Homes eligibility criteria (ie. to anyone and for the full market value.
 
In conclusion
No doubt, First Homes will be a welcome addition to the market for potential purchasers, by providing an alternative step onto the ladder as other schemes such as Help to Buy scheme are phased out.
 
For developers, this may also be a welcome change, although we don’t believe it will have significant impact. It will place the delivery, and therefore the control, of a proportion of affordable housing with the  housebuilder and not the Registered Provider..  That said, there is no doubt that local planning authorities and neighbourhood planning groups will look to implement local level policies, which could increase the percentage requirement or eligibility criteria, it is therefore essential that representation is made on any such policies at consultation stage.
 
Should you wish to discuss First Homes (we would love to hear your own views on First Homes!), or any other planning matter with our team, please do get in touch.

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