Registered providers: what you need to know about First Homes

Registered providers need to be aware that as of 28 June 2021 there will be a new type of affordable product to offer: the First Home.

This new tenure type of affordable home will have a significant impact on the availability and viability of section 106 schemes for registered providers. 

What are First Homes and who can buy them?

First Homes are discounted market sale units and are part of the government’s package of planning reforms.

They work as follows:

• On first sale the homes will be discounted by a minimum of 30% against market value (set by an independent valuer) with a cap of £250,000 (or £420,000 in Greater London);
• The discount can be increased to up to 50% by local planning authorities, and they can also impose lower caps if it can be justified;
• The discount will apply to subsequent second hand sales, secured through a section 106 planning obligation and by a restriction registered against the Land Registry title;
• There will be eligibility criteria applied to the prospective owners of the First Homes. They must be prioritised for first-time buyers and may not be sold to persons whose household incomes exceed £80,000 (or £90,000 in Greater London). Local planning authorities and, interestingly neighbourhood plans, can amend these eligibility criteria and add additional criteria, such as key worker status or local connections.

To deter First Homes from being acquired by investors or for commercial gain, buyers who can deposit more than 50% of the discount price will not be eligible. Additionally there will be restrictions of two years on the duration of any rental period (with this restriction capable of being relaxed if the circumstances of the tenant make that appropriate).

When do First Homes come into effect?

The provisions come into effect on 28 June 2021

However, there are transitional arrangements. They will not apply to sites which already have full or outline planning permission in place or are determined before 28 December 2021. Nor will they apply to section 73 applications to vary or amend an existing planning permission.

For planning applications which have not been determined by 28 December 2021 but have had significant pre-application engagement then the First Home provisions will not apply until 26 March 2022.

Registered providers should bear these timescales in mind when entering into any contracts conditional on the grant of outline planning and factor in any necessary onerous condition clauses when agreeing the terms of a conditional contract.

How will these changes impact on house builders?

First Homes will in due course need to be offered and accommodated in new schemes. House builders will need to identify what these policy requirements are early on.

Hopefully they will be a popular tenure and will sell quickly. Still, house builders may miss the cash-flow benefit of the bulk sale of all the affordable units.

The First Homes will be provided for in section 106 agreements. We hope that there will be consistency in planning authorities' approaches to the drafting. However, it is likely it will create additional complexity and delay as the concept beds in.

How will these changes impact registered providers?

The main concerns for registered providers are:

Reduced availability of section 106 units

In England a minimum of 25% of all affordable housing units are to be First Homes. First Homes will be the government’s new preferred tenure ahead of social rent.

Having prioritised the delivery of the First Homes as the first 25% of the affordable home provision the planning authority should then prioritise securing the next 25% as social rented units, and the remaining tenures shall be in accordance with the development plan.

This will have a material effect on the numbers of affordable housing units available for registered providers to purchase on section 106 schemes once the First Homes provision has been deducted. In particular, it will significantly reduce the number of units available for shared ownership tenure.

Impact on financial viability

Most registered providers rely on shared ownership sales to cross-subsidise the provision of social rented and affordable rented units. Therefore if the number of shared ownership units are reduced it may result in some schemes not being financially viable.

This could also pose difficulties for those registered providers who focus on small section 106 schemes.

Demand for shared ownership

It is possible that the First Homes model is a more attractive option for potential Shared Ownership buyers who can afford to buy a higher percentage share, particularly if local authorities choose to increase the First Homes discount to 50%.

This could result in a reduced demand for shared ownership units albeit this reduction may only be slight as the First Homes model will remain unaffordable for many. The reduced starting equity share introduced with the new Shared Ownership model may also plug that gap by opening Shared Ownership homes to more people.

TLT has extensive experience in advising registered providers on planning issues. If you would like to discuss your matter, please get in touch.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at June 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions