David Perry and Tim Willis examine the Government’s latest proposals for mandatory provision of discounted housing through the First Homes scheme; including the classification of this tenure as “affordable housing” in planning policy terms.
The Government has published its response to the feedback received on its First Homes Getting You On the Ladder consultation paper issued on 7 February 2020 (“Consultation Paper”).
The Design & Delivery document issued by MHCLG on 6 August concludes that there is a need for discounted market housing which is currently not being met by the market. The First Home product is designed to assist in bringing this type of housing into the mainstream, so that many more first-time buyers can get on to the property ladder.
The government’s Planning for the Future White Paper, published alongside the response, sets out plans to amend national planning guidance in this respect.
What are First Homes?
These are new flats and houses which will be marketed and sold at a discount of at least 30% below market value.
Local Planning Authorities (LPAs), will be able to increase that discount to 40% or 50% through the local plan process, subject to justifying that in terms of need and viability.
This is to address any issues around affordability in more expensive areas.
Is the provision of First Homes as affordable housing compulsory?
Yes. The National Planning Policy Framework (NPPF) is to be amended so that 25% of all affordable units delivered through developer contributions under Section 106 Agreements will be First Homes. Further consultation is to take place in relation to this proposed change but the MHCLG has already confirmed that First Homes will be Community Infrastructure Levy (CIL) exempt.
That position will alter, of course, if Section 106 agreements and CIL are ultimately replaced by the new proposals to introduce a single, nationally set infrastructure levy.
In addition, First Homes will be delivered through an amendment to the policy on exception sites. The government’s separate consultations, elsewhere in the White Paper, on local plan reform will be highly relevant to that process.
Will there be a price cap?
The government is clear that it does not want to see the scheme used merely as a subsidy for more expensive housing. As such, price caps will be introduced similar to Help to Buy and shared ownership schemes. These caps will be set at post discount levels of £420,000 in London and £250,000 across England.
Who is eligible for a First Home?
The February consultation paper stated that priority for First Homes would be given to first time buyers, serving members and veterans of HM Armed Forces and key workers (police, nurses, teachers, etc). However, the latest document advocates the setting of LPA specific “local connections restrictions”.
Any restrictions that are set by an LPA must be supported by evidence of need and viability. These will apply for the first three months of the marketing process following which (if unsold), these restrictions would fall away and the first home could be sold to any other first time buyer “across England…” at a 30% discount. That rather undermines overarching objectives of providing local homes for local people, but should assist in avoiding the problem of unsold stock.
In addition, income caps of £90,000 in London and £80,000 elsewhere in England will also apply. Again, these price caps can be set at lower levels (for a limited time) as part of the Local Plan process, subject to evidence of need and viability.
Current members of the armed forces (and those who left the armed forces within the previous five years), and their partners will be exempt from local connection restrictions (although it seems not the income caps?). There appears to be no such exemption for key workers, who presumably will have to satisfy both local connection and income criteria.
A point to note here too is that while this scheme may rightly be assumed to be for first time buyers, the proposal appears to allow scope for existing home buyers to purchase a first home, stating that “…as a rule, First Homes should only be sold to first-time buyers…” MHCLG is to publish a list of circumstances under which non-first time buyers will be eligible, but it seems that these will be limited. In addition, that buyer may not qualify for stamp duty relief enjoyed by a true first time buyer.
All of this sends a rather confusing message about this product, and suggests that there may be concerns over whether it will actually be in reach of all of those that it is trying to assist.
On a more positive note, where First Homes are oversubscribed, LPAs will have discretion to take into account the income (although not other assets) of an applicant in deciding upon allocation.
What happens if a First Home is unsold?
Other than the ability to cascade out from initial local connection restrictions, the document is silent on this point. It does, however, actively argue against any release of restrictions which would allow a First Home to be sold on the open market.
For developers that could prove to be a major headache if units remain unsold, particularly if there is registered provider demand for other tenures/products at a location.
Are there any restrictions on the sale of my First Home?
Yes, standardised restrictive covenants will be imposed which ensure that all restrictions (including the original level of discount), is passed on the future purchasers. That will be administered and made enforceable by the local authority.
In addition, the use of standard Section 106 Clauses is being considered, so that as much of the cost as possible incurred by LPAs in administering the sale of First Homes (and ensuring that the discount is secured), can be recovered. That mechanism will have to be re-visited in due course, if the government’s plans to dispense with Section 106 Agreements altogether are realised.
Will I be able to get a mortgage for First Home?
It is likely that most current lenders involved with affordable housing products will be accessible here.
However, the government is alive to the fact that lenders will want to see an acceptable mortgagee-in-possession clause that waives the discount in the event of re-possession, and is working up suitable wording to provide certainty for lenders.
How will this impact on other affordable housing tenures?
MHCLG has announced that it intends to continue to support other tenures and refers to its significant investment in affordable housing to date. It has also stated that existing Affordable Homes Programme is to be extended by one year which will save those homes that would have been lost as a result of COVID-19.
With an initial requirement of 25% of all affordable housing to be First Homes, however, the delivery of other affordable tenures is likely to be diminished over time.
The use of low cost or discounted market housing as an acceptable affordable housing product has fallen in and out of favour with successive governments since the days of the old PPG3/PPS3 guidance of the 1990’s.
Indeed, it remains a relatively small part of overall affordable housing delivery, with the Government estimating that only 1,000 discounted market sale housing properties are built each year.
In addition, the previous Starter Homes initiative unveiled in 2015, failed to deliver any of the 200,000 affordable homes for first time buyers promised. Interestingly, Starter Homes still remain within the definition of affordable housing as set out in Annex 2 of the NPPF, but no direct reference to this or its interaction with the new First Homes product is made in the latest MHCLG response. That perhaps will change once the NPPF is revisited.
First Homes are to be given priority though as providing an available and affordable route to home ownership. This is a clear sign that the government is focused on delivery, and is trying to open up demand for housing by accommodating new tenure structures driven through the planning process. However, some may say that this initiative feels like salami slicing of existing affordable allocations – generating alternative demand in an existing market segment, rather than genuinely opening-up the open market segment to a debate on affordability and supply.
Although reference is made to these homes being affordable in perpetuity, lenders/mortgagees can be assured that they will not be prevented from realising full market value as a result of default by the borrower.
Notwithstanding these initial concerns, any initiative that seeks to increase access to the housing market by first time buyers in their local area is to be welcomed. It is however important to remember that any such measures recognise and balance the various competing requirements arising from development of any site – true affordable, true open market, and mid-market tenure products all serve to build and promote sustainable communities, and any drive for delivery has to be balanced with a strategic approach to proper community building.
In the absence of that, there is a real risk that we fail to deliver mixed and balanced communities and the full extent of the infrastructure/community benefits arising from new development that they demand.