What is the First Homes Scheme and how can you apply?

What is the First Homes Scheme and how can you apply?

The First Homes scheme launched in England in June 2021 and is the latest government programme aimed at helping first-time buyers on to the property ladder.

Here, we’ll explain how the scheme works, who’s eligible and how you can take advantage of what’s on offer…

What is the First Homes scheme?

The First Homes scheme enables first-time buyers to purchase a home with a discount of at least 30%.

That should mean buyers require smaller deposits – one of the biggest obstacles first timers face when trying to purchase their first home – and smaller mortgages, making them more attractive to lenders.

How does the government First Homes scheme work and am I eligible?

Properties for sale under the First Homes scheme are new-build and must be offered to first-time buyers with at least a 30% discount off their valuation.

The aim of the scheme is to provide affordable homes for local people, key workers and first-time buyers.

In order to be eligible to buy a property under the scheme, you must:

• Be a first-time buyer, meaning you’ve never owned a property before

• Both be classed as first-time buyers if you’re buying with someone else

• Have a household income of no more than £80,000, or £90,000 if you live in London

• Take out a mortgage covering at least 50% of the property’s purchase price

• Be buying a main residence and not a buy-to-let property

First Homes properties are also subject to price caps, with properties outside of London limited to a purchase price of no more than £250,000 after the discount has been applied.

First Homes scheme pros and cons to consider

There are pros and cons to the First Homes scheme that you should weigh up when deciding whether the scheme is right for you.

The pros of the First Homes scheme

• You can buy a new home with a discount of at least 30%

• You could buy with a smaller deposit

• You might need a smaller mortgage

• You may be able to buy in your local area rather than moving away

The cons of the First Homes scheme

• You can only buy a new-build home under the scheme

• New builds can command a premium

• When you sell your property, you need to do so with the same discount applied and you can only sell to a buyer that meets the First Homes criteria

• Competition for the homes is likely to be high

What deposit will I need to buy under the First Homes scheme?

Because properties under the First Homes scheme are sold at a discount of at least 30%, the deposit required to buy one will be reduced.

For example, a property with a valuation of £320,000 would cost £224,000 with a 30% First Homes discount.

That would mean a 10% deposit on the same property would fall from £32,000 to £22,400 – a drop of almost £10,000.

A 5% deposit on the same property, meanwhile, would be £11,200 – compared with £16,000 if it were sold for its full value.

How to apply for the First Homes scheme

There’s no application process for the First Homes scheme.

Instead, you should keep an eye out for new-build developments near you and find out if the developer will be offering any homes under the scheme.

As the scheme launched in June 2021, the majority of properties coming up for sale with the discount will start to hit the market in 2022.

Other UK first-time buyer schemes to consider

The First Homes scheme is one of several homebuying schemes available to first-time buyers in England and Wales.

1. Help to Buy equity loans

Help to Buy equity loans are available to first-time buyers in England and Wales and cover up to 20% of a property’s purchase price.

That means the buyer has to find only 5% of the purchase price as a deposit, with the remaining 75% covered by a repayment mortgage.

In England, the maximum purchase price for a property using an equity loan varies by region, while the Welsh version of the scheme has a purchase price cap of £250,000.

Now read:Everything you need to know about Help to Buy equity loans

2. Shared Ownership

The Shared Ownership scheme sees buyers purchase a percentage of a property and then pay a reduced rent on the remaining share.

For example, you could buy a 75% share in a property, while paying rent on the 25% share that remains with your housing provider.

And as your deposit covers the value of your share of the property, you may not need to save as much in order to get on the ladder.

Shared Ownership is open to first-time buyers and existing property owners who can’t afford to buy the home they require.

In Wales, the maximum annual household income to be eligible for Shared Ownership is £60,000, while English buyers outside of London must have a total annual income of less than £80,000.

3. The 95% mortgage guarantee scheme

The government’s 95% mortgage guarantee scheme is aimed at encouraging lenders to offer first-time buyers more mortgages when they have only a 5% deposit.

The scheme sees the government guarantee a portion of the mortgage, giving lenders added security.

Now read:What 95% mortgages could mean for the property market

Further reading…

How to buy property off-plan

The pros and cons of the 95% mortgage guarantee scheme