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7,000 discount market homes a year: a practical guide to First Homes
From 28 June 2021, and subject to transitional arrangements, English national planning policy will include a home meeting the criteria of a First Home within the definition of ‘affordable housing’.
On 24 May a Written Ministerial Statement (WMS) was made setting out the policy, including the First Homes criteria and transitional arrangements, with further details in planning practice guidance published on the same day.
The same WMS also explains the replacement of the entry level exception sites policy with a ‘First Homes exception site policy and a new model for shared ownership. This blog focuses on what First Homes are, the new policy requirement and when First Homes will be introduced (they already have been). A blog by my colleagues looks at the policy and its potential impacts in more detail: First Homes – dicing with the discount.

National policy on First Homes

From 28 June 2021, in England, national policy will say that at least 25% of all homes delivered through developer contributions should be sold as First Homes.

What is a First Home?

A First Home is:
  • discounted in perpetuity by a minimum of 30% against the market value with plan-makers able to set 40% or 50% in perpetuity discounts where need is evidenced, and developers permitted to offer higher in perpetuity discounts

  • after the discount has been applied, the first sale price of the home (my emphasis) must be no higher than £420,000 in Greater London or £250,000 elsewhere in England with plan-makers able to set lower price caps

  • sold with a mortgage or home purchase plan for at least 50% of the discounted purchase value to a person meeting the First Homes eligibility criteria

  • a primary residence, not used for investment or commercial gain, albeit it may be let for up to two years

  • secured by a s106 agreement to ensure its delivery and the necessary restrictions on title[1] (a model s106 agreement for First Homes is being devised)

Who is eligible?

First Homes are to be “prioritised” for first time buyers (as defined in legislation already for the purpose of stamp duty relief). The local authority may set local eligibility criteria. The policy provides examples of criteria that might be applied, such as key workers, local connection, different income caps, but this is not an exhaustive list. Members of the Armed Forces and (subject to certain criteria) their partners and veterans would be exempt from a local connection test. So, if no local tests are set, the purchaser must be a first-time buyer purchasing borrowing at least 50% of the discounted purchase value. The purchaser (or purchasers) should not have a combined annual household income greater than £80,000 (or £90,000 in Greater London) in the tax year immediately preceding the year of purchase.

What if there is no demand for a First Home?

The planning practice guidance says that a s106 agreement may include provisions permitting open market sale of a First Home if it is marketed as a First Home for at least 6 months in total and “all reasonable steps have been taken to sell the property (including, where appropriate, reducing the asking price)”.
Where these provisions are included, the s106 agreement must require the seller to compensate the local authority for the loss of the First Home in the way set out in the planning practice guidance.

What is the policy requirement and how does it relate to existing tenure mix policies?

At least 25% of all affordable housing units secured through developer contributions should be First Homes. As with other affordable housing, the policy expectation is that this is provided on-site unless an alternative financial contribution or off-site provision is justified. A quarter of any financial contributions for affordable housing should be used to provide First Homes.
Having “secured the 25% requirement”, local authorities should prioritise social rent, in accordance with local policy and “where other affordable housing units can be secured, these tenure-types should be secured in the relative proportions set out in the development plan”.
Examples of the application of this approach are given in planning practice guidance:
“For example, 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”.
(Paragraph: 015 Reference ID: 70-015-20210524)
The proposed development should also meet up-to-date policy requirements regarding cash in lieu contributions.
The local planning authority (LPA) is responsible for calculating the value of the elements of the new affordable housing mix to establish whether a planning application is policy compliant, because it seeks to capture the same amount of value as would be captured under the local authority’s up-to-date published policy.
Where the transitional arrangements do not apply, the LPA is responsible for making clear how existing policies should be interpreted in the light of First Homes requirements “using the most appropriate tool available to them”.
Regarding the application of First Homes policy locally, consideration of the impact of First Homes policy on existing local policies and the “tools available” to the LPA, the planning practice guidance says:
“Local planning authorities are also encouraged to make the development requirements for First Homes clear for their area. The most appropriate method or tool to do this will depend on individual circumstances for each local planning authority. These might include (but may not be limited to): publication of an interim policy statement, or updating relevant local plan policies. Local planning authorities should assess their own circumstances when considering the most appropriate way to achieve this in their context” (Paragraph: 009 Reference ID: 70-009-20210524).

Will the First Homes policy requirement supersede development plan policy?

Not necessarily.
The development plan remains the starting point for the determination of planning applications.
The First Homes policy will be a material consideration – indeed it already is, together with proposals for other forms of affordable housing defined in the National Planning Policy Framework, notwithstanding the transitional arrangements.
A reminder of the difficulties that arise when Government introduces a swift change to national policy on affordable housing provision is the judgment in Secretary of State for Communities and Local Government (SoS) v (1) West Berkshire District Council (2) Reading Borough Council (2016) (our overview is here).
In that case the SoS appealed against the Councils’ successful challenge (in 2015) of national policy introduced in 2014 for a ‘vacant building credit’ and which outlined the circumstances in which contributions for affordable housing and tariff-style planning obligations should not be sought from small scale and self-build development. The judgement led, effectively, to both sides claiming a victory: the Government won the case, but the case makes it clear that there is no ‘blanket approach’ to the application of government policy to decision-taking, or plan-making.
Hence the Government expecting local planning authorities to use the most appropriate method available to them to set out how the First Homes requirements impact on their current affordable housing tenure mix policies and affect the interpretation of policies (see above).

What are the transitional arrangements?

The requirements will not apply to:
  • local plans and neighbourhood plans submitted for Examination before 28 June 2021, or that have reached publication stage by 28 June 2021, as long as they are submitted for Examination before 28 December 2021 (and subsequently not to planning applications submitted in areas to which they relate); or

  • sites with full or outline planning permissions already in place or determined (or where a right to appeal against non-determination has arisen) before 28 December 2021 (or 28 March 2022 if there has been significant pre-application engagement).
However, the Government says “local authorities should allow developers to introduce First Homes to the tenure mix if they wish to do so”. “They” could mean developers or local authorities.
The transitional arrangements for plan-making are therefore more of a line in the sand than those for decision-making, given the above statement and that the First Homes product is a form of discount market sale housing in any event.
The written ministerial statement notes “The Government will continue to monitor the effectiveness of these transitional arrangements in light of emerging economic circumstances”.

Does this mean that planning applications to be determined prior to the end of the transitional period cannot include First Homes?

Discount market sales housing is already a form of affordable housing, defined in the glossary to the National Planning Policy Framework. According to that definition of discount market housing:
“Eligibility is determined with regard to local incomes and local house prices. Provisions should be in place to ensure housing remains at a discount for future eligible households”.
There are already developments with planning permission that will provide First Homes affordable housing. For example, the Dylon 2 scheme at Lower Sydenham, granted on appeal on Metropolitan Open Land, which will provide 49 First Homes. The Inspector said:
“Although not policy compliant in accordance with BLP Policy 2 [provision of affordable housing], the provision of 49 affordable units would make a significant contribution to meeting the considerable need for AH in the Borough. I attach substantial weight to this social benefit of the proposal”.
The Government’s Equality Impact Assessment for the First Homes policy says First Homes will be a reform of the discounted homes programme and acknowledges:
The National Planning Policy Framework already allows local plans to include ‘discounted market sales housing’ that is sold with a discount of at least 20% over market prices. […] delivery remains relatively small scale and we want to substantially increase the build-out of these homes.

What about 'low cost homes for sale' that are not First Homes?

Sub-category d within the definition of affordable housing in the National Planning Policy Framework is “Other affordable routes to home ownership”.  This includes shared ownership and “other low cost homes for sale (at a price equivalent to at least 20% below local market value)”. This definition does not refer to the eligibility criteria or discount for owners of the home. The scope to provide low cost market homes for sale that are not First Homes as a form of affordable housing will be squeezed by the policy requirement to provide First Homes. Shared ownership products will also be squeezed in the future, but in the short term up-to-date tenure mix policies may encourage them.

Community Infrastructure Levy relief is already available

First Homes are a form of affordable housing. Mandatory social housing relief from the Community Infrastructure Levy has been available for certain discount market home products since November 2020.
To be eligible for mandatory social housing relief in this category, a planning obligation must be entered into prior to the first sale of the dwelling designed to ensure that any subsequent sale of the dwelling is for no more than 70% of its market value. 
The existence of mandatory social housing relief for this form of affordable housing further demonstrates that First Homes can already be brought forward now. However, mandatory social housing relief from the Community Infrastructure Levy is not available for affordable housing products offering a discount of less than 30%.

Six years to reach delivery of 7,000 First Homes a year

In October 2020, MHCLG Permanent Secretary Jeremy Pocklington said to the Public Accounts Committee’s inquiry into Starter Homes that implementation of the First Homes policy will not be quick and referred to the transitional arrangements:
“We will need to adjust the planning policy in order to fully implement the First Homes proposal. After that stage, authorities, as they change their policies and update their local plans, will be required to provide First Homes. We are not setting a timetable on that. We are going to learn from the 1,500 homes. This is a policy that will grow over several years. It is not a quick policy to implement”.
This acknowledgement of the time it will take to introduce First Homes policy into development plans is reflected in Figure 1 of the Equalities Impact Assessment for First Homes, which says full implementation will be in 2027/2028:

Summary… and a blog on potential unintended consequences 

Low cost homes for sale are not a new form of affordable housing, but the specific criteria and requirements of First Homes are new. Having said that, there are already examples of planning permissions that include First Homes as a type of affordable housing; the Government’s policy intentions have been clear for some time and the introduction of mandatory CIL relief for First Homes or similar products has been around since last year.

Therefore, while the First Homes policy requirement will take some time to filter through to development plans, where developers seek to include First Homes as an affordable housing contribution, there is scope to make the case for this immediately, rather than waiting for the transitional period to end.

A blog by my colleagues ‘First Homes – dicing with the discount’ looks at some potential inherent tensions within the First Homes policy and considers whether the one-size-fits-all approach might have unintended consequences.



[1] Paragraph 006 of the First Homes Planning Practice Guidance says: When a First Home is sold by the developer to the first owner, a restriction is to be entered onto the title register identifying the unit as a First Home. This restriction should ensure that the title cannot be transferred to another owner unless the relevant local authority certifies to HM Land Registry that the First Homes criteria and eligibility criteria have been met, including the discounted sale price.


First Homes: dicing with the discount

First Homes: dicing with the discount

Rachel Clements & Bethan Haynes 27 May 2021
The idea of delivering discounted new homes to buy is not new. Six years ago, Starter Homes were making the headlines, but after being plagued with practical difficulties MHCLG’s Starter Homes guidance was shelved last year. Enter First Homes.
The problems faced by first-time buyers getting onto the property ladder is well documented, and no more so than in the past year post lockdown 1.0. The Stamp Duty holiday has pushed sales and house prices to record highs fuelled, as always, by demand far outstripping supply. On paper, First Homes could hold at least some of the answers; strictly only on offer to first-time buyers (helping see off competition from buy-to-let landlords and existing homeowners), they also come with a hefty discount on full market value (30+%) and, unlike other intermediate products like shared ownership, they don’t come with the burden of paying fees, maintenance costs and ground rents to a registered provider or other ‘landlord’. From a buyer’s perspective, it’s almost too good to be true. But what about from a planning perspective? Is it an answer to fixing the broken housing market? What might be the practical issues with its implementation?

Inherent tensions?

Our previous blog sets out the nuts and bolts of what a First Home is and how it should be planned for and delivered. The key criteria are:
  • That the first sale price no higher than £250,000 (or £420,000 in Greater London), after a minimum discount of 30% has been applied;

  • That homes reflect the needs of first-time buyers in the local area (for example, they reflect the size of dwelling needed); and
  • That First Homes are physically indistinguishable in quality and size from equivalent market homes (inter alia, that they reflect minimum space standards)
As is so often the case in planning, a one-size-fits-all approach usually has unintended consequences. There are likely to be some areas where all three criteria can be easily satisfied, assuming that these First Homes also do not undermine the overall viability of a scheme. But it is vital to recognise that the criteria are inter-related; if homes must meet the local needs of first-time buyers in the local area, then they need to be sold at a price which reflects local household incomes (which is also no more than £250,000) and be of a size which reflects needs (i.e. demographic  characteristics of first-time buyers, such as whether they are couples or families). But price and size are not independent variables. Prevailing market values (£/sqft) will dictate the size of home that can be delivered for a given price, and vice versa, as shown in Figure 1. At the outset, it is important to recognise that the need to meet all three criteria is likely to create tensions in some areas, with one criteria needing to bend to the other two.
Figure 1 – Criteria for First Homes and relationships to each other.

Source: Lichfields

Housing affordability varies hugely across the country meaning First Homes are likely to have a variety of different impacts on first-time buyers and housing markets, depending on the local characteristics. To try and understand the issues different areas might face, we have looked at house prices and affordability in the entry-level[1] second-hand market across England and compared this with what affordability could be in those areas with First Homes, based on the price of entry-level new-build homes being discounted by at least 30%. For the purposes of this blog we have assumed first-time buyer households are couples (i.e. dual earner)[2], and that they can afford housing where prices equate to no more than 4.5x their joint income[3].
This has led us to five broad outcome typologies as summarised below.
Figure 2 - Typologies based on Housing Market Characteristics and potential outcomes for First Homes.

Source: Lichfields

Where can First Homes potentially have the biggest impact?

First Homes have the potential to have the greatest impact in areas where first-time buyers are currently priced out of the open market (at the entry-level) but where First Homes would be within reach, when the minimum 30% discount is applied. We estimate this represents around one in five authorities in England – around 63 in total.

Will the delivery of First Homes be achievable in the most unaffordable areas?

There are a significant number of authorities where first-time buyers are currently priced out of the local second-hand market and where First Homes – with the 30% minimum discount applied – would still be out of reach. We estimate this represents just under one-third of authorities in England – 90 in total.
In some areas the severity of affordability issues may lead to tension between the need to deliver homes that are locally affordable, whilst also being of an appropriate size to meet needs. This could leave authorities needing to; a) deliver homes which are smaller than local first-time buyers need in order to achieve a final sale price below the cap; or b) enforce an even greater discount to bring the price of those homes below the cap (which would require evidence and bring further questions around viability).
If size needs to flex, this draws into question whether the demand will be there for such small units. The average age of first-time buyers is now 32 (and higher in London)[4]; at an age where the buyer may have (or be wanting) a family, would the desire to get on the property ladder be so strong that a potentially very small unit would do? And is there a risk that, in such areas, we could see First Homes built which are ultimately unable to be sold, and which ultimately end up reverting to open market housing?
Alternatively, if size is fixed, and discounts of such significance need to be applied to ensure First Homes are affordable and below the £250,000 cap, this could impact the viability of the scheme more widely. A common point of negotiation concerning viability is the overall quantum of affordable housing provision, and this could see situations where the discounts required to deliver First Homes undermine the overall provision of affordable housing, most notably affordable rent[5].

What about where the second-hand market already offers affordable options for first-time buyers?

Our research found that a total of 160 authorities have entry-level homes in the second-hand market which are at or below 4.5x earnings (for a dual-earner household). In these areas, it raises the question that if the second-hand market already provides a suitable solution to most first-time buyer needs, then First Homes might not be the best way of meeting overall housing needs, especially if they are displacing other tenures which might be desperately needed, such as affordable rent.
Notwithstanding this, these 160 authorities fell into three distinct categories:
  • Authorities where First Homes would be similar in affordability terms to the existing second-hand market, reflecting the premium of new homes. This would increase choice for first-time buyers in the local area, but continues to raise the question of whether it is the most effective way of meeting overall needs if it displaces other tenures which are needed;

  • Authorities where, although the second-hand market is currently affordable, the cost of a First Home (at the minimum 30%) is potentially unaffordable. Admittedly this is only a handful of authorities but suggests that new build housing in these areas carries a substantial premium over existing housing. In these areas, authorities may need to consider mandating a discount greater than 30%, and developers may find themselves having to offer an even greater discount to this minimum in order to sell the product (and if prices are not brought down to a locally affordable level, this could risk those First Homes being left unsold, and ultimately reverting to open market housing); and

  • Authorities where second-hand market housing is already affordable and the introduction of First Homes could potentially be even cheaper than the second-hand market. These areas are potentially at risk from the local second-hand market ‘bottoming out’ if demand dries up, and authorities may need to bring in restrictions to ensure First Homes are not built unnecessarily large or expensive
The potential impact of First Homes, based on the five categories of housing market characteristics, are shown in Figure 3 below.
Figure 3 – Authorities by potential impact of First Homes.

Source: Lichfields analysis

Concluding thoughts

For first-time buyers currently priced out of their local market, First Homes may be seen as welcome. And undoubtedly, in some parts of the country, First Homes are likely to be able to be delivered at a price point which is affordable locally, within the price cap, at sizes/types which reflect the needs of local first-time buyers, all without undermining the wider viability of schemes.
But many areas, particularly those at the top end of the market, could face difficulties in balancing the need to deliver First Homes within the prescribed price cap, which are also affordable to local residents, whilst being of an appropriate size to meet local needs, all without undermining viability.
The lower end of the market is equally not immune from potential issues, particularly if First Homes undermine the local second-hand market, and authorities might need to consider an even lower price cap to ensure First Homes are not unnecessarily large or expensive.
Questions also remain as to whether mandating 25% of affordable homes as First Homes represents an appropriate target if it displaces other tenures in favour of simply increasing choice for first-time buyers.
The First Homes policy will undoubtedly bring new challenges for local authorities in the production of evidence for their local area, to not only assess needs, but also to set appropriate discounts triangulating price, need and size.  
As ever, when blunt policy concepts meet the reality of local housing markets and the scrutiny of the planning system, complexity and hard work results.
[1] ‘Entry-level’ is taken as lower quartile prices and workplace-based earnings. Based on ONS data for affordability of new-build and existing dwellings for 2020. For Gosport and Portsmouth, 2020 new build price data is missing so earlier data is applied. For Gravesham the new build price for 2020 appeared erroneous and therefore the 2019 figure was used. Data uses overall lower quartile prices for new-build and existing dwellings rather than mix-adjusted prices or prices per sqft (which are not readily available) hence is not a perfect measure of potential First Home affordability.[2] On the basis of the English Housing Survey finding 2019/20 that 76% of first-time buyer households are couples[3] This is broadly consistent with around a 10% deposit and a mortgage which is 4x annual income[4] See English Housing Survey 2019/20[5] Paragraph: 015 Reference ID: 70-015-20210524[6] This could occur, for example in an area where housing is already highly affordable, and the discount placed on First Homes means that larger housing (than is otherwise needed) can be delivered whilst still being affordable to local first-time buyers.Photo by Richard Horne on Unsplash