First Homes: one year on I

t is over a year since First Homes became a consideration in planning applications. Despite much fanfare from the Government about “supporting people to own their home and make home ownership a reality,” there has been limited take-up by housebuilders and a lukewarm reception from local authorities

The requirement has not been established long enough for there to be a clear picture on the popularity of First Homes among buyers, but there are some significant downsides in comparison to other forms of affordable housing.

Councils have largely been noncommittal on First Homes in their local plans. Many have issued interim position statements confirming that First Homes are now a policy requirement, but caveat that non-compliance can be justified by viability testing Most have put off stipulating a specific discount, instead adopting the 30% minimum in the absence of evidence to support higher discounts

In London, rented tenure products have remained a priority The GLA issued a Practice Note in July 2021 stressing its preference for Social Rent and London

Affordable Rent over First Homes In March this year, Camden became the first local authority to formally reject First Homes in its planning policy, setting a precedent for others to do the same Camden stated that it would continue to prioritise the delivery of affordable housing at rents related to local incomes instead of First Homes

This is unsurprising in high-value areas such as Camden. Recent schemes in the borough have starting prices of over £500,000, meaning a substantial discount would be required for homes to fall under the £420,000 price cap Even so, buyers would require a hefty deposit and given the First Homes eligibility cap on household income of £90,000, there is a limited market for those who can both qualify for and afford a home under the scheme

Research has shown that across London, just 12% of first-time buyer households would have the required income for an average two-bedroom flat under the First Homes scheme. In pricier boroughs such as Camden, this would be even lower

Affordability is clearly an issue. In London, the average deposit for a firsttime buyer stands at around £115,000 according to Halifax Nationally, it is circa £54,000 This affordability problem has been exacerbated by soaring interest rates on new mortgages and the withdrawal of the number of mortgages offering over 90% loan-to-value (LTV). N e v e r t h e l e s s , i n t h e f e w s c h e m e s t h a t h a v e s t a r t e d s e l l i n g F i r s t H o m e s , t h e y h a v e r e p o r t e d l y p r o v e n v e r y p o p u l a r a n d a t t r a c t e d a l o t o f i n t e r e s t S i g n i f i c a n t l y , a l l t h e s e s c h e m e s h a v e b e e n o u t s i d e L o n d o n w h e r e h o m e s a r e m o r e a f f o r d a b l e

For housebuilders, there are several disadvantages to First Homes Firstly, whereas other first-time buyer initiatives such Help to Buy have been targeted at selling private homes, First Homes must be sold by the developer, in direct competition with the private homes. This increases sales risk and exposes the developer in the event of a fall in prices

A further problem is that First Homes are restricted to an open market sales rate, rather than sale in bulk to a Registered Provider with payment in instalments during construction This reduces the IRR or return on capital expenditure because the revenue is received at a later date Financing costs also increase because the receipts cannot be used to offset the construction costs

In summary, First Homes face various issues from multiple angles. Many local authorities would prefer to provide rental properties which tackle genuine affordability issues First Homes also present disadvantages to developers who would rather provide traditional affordable housing And for many buyers, prices remain unaffordable, particularly during current economic uncertainty and reduced availability of mortgages