Guidance for LPAs

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How will the First Homes scheme impact local authorities? Sarah Waite, Partner, Suzanne Smith, Partner and Jennifer Eng, Senior Solicitor, from law firm Capsticks, examine the scheme and set out the issues local planning authorities (‘LPA’) need to be aware of in administering it.

The First Homes scheme came into effect on 28th June 2021 and is the Government’s new preferred tenure ahead of social rent. The scheme requires a minimum of 25% of all affordable housing units to be First Homes.

First Homes are a type of discounted housing, which can only be sold to persons meeting specific eligibility criteria. They must be discounted by a minimum of 30% against market value, with a maximum cap on the first sale after the discount is applied of £250,000 (or £420,000 in Greater London). The discount can be increased to 40% or 50% by the LPA, or also impose lower caps if it can be justified.

In addition, First Homes must have a legal restriction entered on their respective titles so as to ensure the discount is maintained at all onward sales. The obligations will be secured within a Section 106 Agreement. Template planning obligations

The Government has published template planning obligations which local authorities can use as a basis for any agreements prepared locally. The template includes model wording for both the restriction to be entered on the First Home’s title and for a mortgagee exclusion clause, which allows lenders to waive the discount on market value upon onward sale.

The Government has strongly encouraged LPAs to use the model wording within the template planning obligations to attain consistency in the implementation of First Homes. The content of these obligations will therefore be fundamental in the operation and application of the scheme going forwards.

How will the scheme work?

The scheme will be administered and controlled by the LPA, a restriction on title to be entered onto the registered title of the relevant First Home. This means that a future purchaser will need to obtain a certificate from the LPA in order to proceed with the purchase and to ensure that the discount is maintained in perpetuity (subject to the mortgagee exclusion clause).

In order to give the relevant authority to proceed with the transaction, the LPA will assess the valuation of the First Homes to ensure that the correct level of discount is being secured. It is anticipated that this will be a concern to LPAs in respect of the level of expertise and the already limited resource in order to assess applications to provide the relevant authority.

Currently, there is no formal policy position as to whether the LPA will be able to seek additional contributions from the developer in respect of this, but it is anticipated that an administration fee of £150 – £200 will be recommended per First Home. Homes England is expected to publish further guidance and materials

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in order to support LPAs in the administration of the First Homes scheme, which will also include placing the majority of the responsibility on the developer (or other party looking to sell) to provide the full suite of information for the approval. LPAs will not be responsible for ensuring that the packs are complete and will be entitled to reject outright any which contain incomplete information.

Aside from specific guidance around the First Homes scheme, the overarching public law principles will continue to apply to any decision made by the LPA, and decisions will be capable of being challenged by Judicial Review.

Potential impact of the scheme

The First Homes scheme will inevitably reduce other forms of affordable housing funded through section 106, with 25% of developer contributions reserved for First Homes. The Government claims it will ring-fence homes for social rent so that the main impact could fall on shared ownership and affordable rent. Naturally, this will result in a reduction of the number of units offered for affordable rented or shared ownership tenures operated by RPs.

This will be a significant matter for the LPA to address when preparing their annual monitoring report and local plan updates to reflect whether there is an adverse impact on housing need as a result of the reduction in delivery of conventional types of affordable housing.

LPAs need to include First Homes as part of their Local Plan going forward, except for plans submitted or published prior to 28th June 2021 or plans which have been resubmitted before 28th December 2021. Whilst the current Planning Practice Guidance encourages the First Homes tenures, there is no statutory requirement to include First Homes within the Local Plan. Therefore, First Homes is likely to be an appropriate policy requirement in most circumstances, subject to robust evidence and demonstration of housing need. Caution should be taken against attempts to exclude First Homes from the Local Plan as this may risk the plan being declared unsound.

In updating policies for First Homes, LPAs will also have the ability to set their own eligibility and local connection criteria. This will apply in addition to the national eligibility criteria and most likely, reflect the criteria that LPAs currently have in place for affordable housing allocations.

The requirement for the First Homes to be at a price within the caps, as well as physically indistinguishable in quality and size from equivalent market homes could be difficult to reconcile. Some LPAs already include provisions within section 106 agreements that any affordable housing is to be constructed tenure blind. LPAs may need to consider imposing greater discounts in order to make the First Homes more affordable for a higher specification property but this may in turn have an impact on viability of the scheme.

Conclusion

Having a big part to play in the success of the First Homes Scheme, LPAs will need to consider the policies in great detail upon the next review or update of the local plan and incorporate First Homes in a way which is most suitable to meet the housing need within the borough.

In a climate where local authority resources are stretched and underfunded, the additional pressures introduced by the First Homes scheme are likely to add to the local authority burden. Those looking to sell or acquire a First Home will need to ensure that all relevant information is provided to the LPA at the earliest opportunity to avoid delays in the conveyancing process. It would be beneficial for LPAs to have a standardised process and list of documents setting out the evidence to be provided for their review in order to streamline the approval process.

As the scheme is implemented, the LPAs will need to monitor how this affects housing delivery in their borough and whether the price caps set are fit for purpose in order to meet market needs. They will need to give particular note to how this affects the delivery of other affordable housing tenures and any adverse impacts in the reduction of affordable rented and shared ownership stock.

How Capsticks can help

Capsticks offers a full service across development and planning law, corporate and securitisation, housing leasehold and asset management. The firm are experts on all aspects of planning law including s106 agreements, CIL advice, planning appeals, and can help you with all aspects you need to consider when planning a development.

If you have any queries around what is discussed in this insight, or the steps that you can take in any given case, you can contact Sarah, Suzanne or Jennifer at Capsticks to find out more about how they can help.

More Information

■ Contact Sarah Waite by email on Sarah.waite@capsticks.com or telephone 020 8780 4579 ■ Contact Suzanne Smith by email on suzanne.smith@capsticks.com or telephone 01962 678350 ■ Contact Jennifer Eng by email on Jennifer.eng@capsticks.com or telephone 01962 678336