It is now December 2021. For good or for ill, we are now only days away from the end of the transitional arrangements for First Homes, which largely finish on 28 December 2021. For vast swathes of England, the New Year, will bring a mandatory new tenure of affordable housing.
The greatest teacher, failure is*. Whilst Starter Homes notoriously never managed to get off the starting blocks, the government has put a great deal more effort into trying to make First Homes a success. If the new tenure is to make the impact that the Government hopes, then its roll out in the first few months of 2022 will be critical.
This post takes a look at the rules surrounding First Homes, how the new tenure is intended to work, and how ready we are for it's introduction... after all, to mis-quote the Mandalorian**, affordable housing is a complicated profession, so ensuring that the introduction of First Homes is a success may not be entirely straight forward.
I like firsts. Good or bad, they're always memorable.
So, a quick recap for those of us who may have been stuck raising blurrg on Arvala-7 for the last year. First Homes are a new form of affordable housing, introduced by DLUHC in May 2021 (before the great re-brand, when the department was still going by MHCLG).
In essence, First Homes are a form of discounted market housing; sold to eligible purchasers at a discount of at least 30% of market value. This discount is protected by a restriction on title, so that when the unit is sold on, the subsequent purchaser will also benefit from a discount of the same percentage.
As the name suggests, First Homes are designed to help people take their first steps onto the housing ladder. As such, there is a maximum price cap on the units that can be sold as First Homes. After the discount has been applied, the first sale of a unit must be at a price no higher than £250,000 (or £420,000 in Greater London).
The focus on first-time buyers is also reflected in the eligibility criteria for the new tenure. In order to be eligible, a purchaser must:
- be a first time buyer (or buyers);
- with a combined annual household income not exceeding £80,000 (or £90,000 in Greater London) in the tax year immediately preceding the year of purchase; who
- is using a mortgage or home finance plan to fund at least 50% of the discounted purchase price.
Councils can set additional policy requirements for the tenure, either requiring a deeper discount above the nationally prescribed 30%, or setting additional eligibility requirements for purchasers, such as lower income thresholds or local connection requirements. Any such local requirements do, however, need to be justified. Locally set discount levels need to be justified by reference to local market values. Any local eligibility criteria would only apply for the first three months of marketing a first home. If an eligible buyer has not been found within that period, the local criteria are disapplied.
First Homes will help you. DLUHC has spoken
The Government is remarkably determined to ensure that First Homes are the Way. From January 2022, National Planning Policy Guidance requires Councils to ensure that First Homes account for at least 25% of all affordable housing delivered by developers.
This 25% is to form the 'top slice' of all affordable housing requirements - overriding the preferred tenure mix set out in the Council's local plan. Once this 'top slice' has been taken, the next priority tenure is social rent - which has to be delivered in the percentage required by the local plan. The delivery of all other tenures of affordable housing are deprioritised as a result.
To quote one of the examples given in the NPPG:
" if a local plan policy requires an affordable housing mix of 20% shared ownership units, 40% affordable rent units and 40% social rent units, a planning application compliant with national policy would deliver an affordable housing tenure mix of 25% First Homes and 40% social rent. The remainder (35%) would be split in line with the ratio set out in the local plan policy, which is 40% affordable rent to 20% shared ownership, or 2:1. 35% split in this way results in 12% shared ownership; and 23% affordable rent."
As such, whilst you may not need to be a Jedi to figure out what a policy compliant affordable housing offer will look like in the New Year; a working knowledge of algebra might come in rather handy. Particularly if your Council has yet to update it's affordable housing policies (which many have yet to do).
I’m a Mandalorian. Weapons are part of my religion.
National Planning Guidance makes it clear that First Homes are expected to be secured through s.106 Agreements - which is ironic, given DLUHC's repeated threats to get rid of them.
Whilst the government did originally promise to publish template s.106 Agreements, for Councils to consider, these have yet to materialise and it seems unlikely that any such templates will be produced before the end of the year. As such, developers and Councils will have to agree suitable wording for securing First Homes between themselves.
Whilst the template s.106 Agreements have yet to materialise, the NPPG does contain some guidance on what these planning obligations should contain - which is intended to stop Councils and Developers succumbing to the dark side of the force.
Whilst this guidance is, inevitably, light touch, it does at least make it clear that s.106 Agreements dealing with First Homes should:
- secure the delivery of the First Homes;
- ensure that a legal restriction is registered onto a First Home’s title on its first sale - to ensure that the discount is passed on to future purchasers;
- Include provisions setting out the eligibility criteria for First Homes, and when any local eligibility criteria cease to apply; and
- Include a Mortgagee Exemption Clause ensuring that mortgage providers can sell on the open market in the event that they need to enforce their security
It's a Trap!*
The guidance also states that Councils should also consider including provisions to allow future owners of First Homes to sell free of restrictions, in the event that a suitable buyer for the property, as a First Home, cannot be found. This is necessary if First Homes are not to become a trap for first time buyers, who must at some point be allowed to move up the housing ladder.
Selling a First Home free of its restrictions is not likely to be easy, however, as the guidance makes it clear that any such provisions would come with significant strings attached. In particular:
- a requirement that the seller (either the developer or a future First Home owner) compensates the relevant Authority for the loss of the affordable housing unit. This would usually mean a payment equivalent to the value of the discount the First Home was to be sold for i.e. 30% of the final sale price;
- a requirement that the home is marketed for at least 6 months in total before the restrictions are removed; and
- a requirement that all reasonable steps have been taken to sell the property (including, where appropriate, reducing the asking price).
If care is not taken, the cumulative impact of all of these restrictions could leave purchasers of First Homes stuck with them and unable to sell for a considerable period of time.... a situation that could, unfortunately, make Admiral Ackbar's famous outburst rather apt.
Your astute panic suggests that you understand your situation
Given that First Homes are definitely going to be making an appearance in the very near future, it is, perhaps a little surprising that DLUHC's preparations for them have been quite so piecemeal. It really does feel as if the Department is leaving the tenure's fate up to chance.
Whilst the government has:
- published a model restriction on title for the new tenure;
- included First Homes in the provisions for mandatory CIL relief; and
- issued relatively extensive guidance around the new tenure
there is a lot that remains to be done.
At the time of writing, we are still in a situation where:
- the National Planning Policy Framework for affordable housing exception sites does not reflect the proposals for First Homes and, in fact, directly conflicts with the relevant National Planning Policy Guidance;
- DLUHC have yet to publish a model Mortgagee's Exemption Clause, or indeed the promised template s.106 Agreements for the tenure; and
- many local authorities do not have affordable housing policies that reflect the Government's aspirations.
This failure to properly prepare for such a fundamental shift in the market, could well mean that First Homes are being set up for a rather bumpy landing... DLUHC can but hope that the Force is with them.
*yes, we are back in the world of Star Wars! May the Force be with you!
** Something I will be doing a lot in this post - pretty much solely to justify the decision to illustrate this article with a photo of my youngest cos-playing as Baby Yoda*!
*!yes, I know Baby Yoda's actual name is Grogu....
!* ok - I may have thrown some classic star wars references in for good measure...
A minimum of 25% of all affordable housing units secured through developer contributions should be First Homes. It is expected that First Homes (and the mechanism securing the discount in perpetuity) will be secured through section 106 planning obligations. In accordance with paragraph 62 of the National Planning Policy Framework, affordable housing is expected to be delivered on-site unless off-site provision or a financial contribution in lieu can be robustly justified, and the agreed approach contributes to the objective of creating mixed and balanced communities.