It’s not easy to get on the property ladder. Even before you add in the complicating factors of conveyancing and contract law, there’s the not-at-all-small issue of actually being able to afford it.
Studies have shown that it’s cheaper to pay a monthly mortgage than to rent a comparable property, and this is true no matter what part of the UK you’re in. Of course, in order to benefit from these attractive savings, you’d need to be able to cough up the deposit.
According to the very latest figures (we got them from the Office of National Statistics, we don’t have access to some kind of secret society of estate agents) the current average property price in the UK is just over £280,000. A 10% deposit on a property of that price would set you back an eye-watering £28,000.
Of course, average property prices are just, well, an average. Property in some areas will be cheaper and in others it will be a whole lot more expensive. Many would-be buyers have found themselves effectively priced out of the locales they’ve lived in all their lives due to popularity and property prices spiralling ever upwards.
Is there anything to be done about this conundrum?
Here’s a bit of good news for you: yes! The First Homes Scheme
The scheme sets out to make homes affordable for local people. (Though it’s only on offer in England, we’re afraid).
Eligible new build flats and houses are sold at a discount of at least 30% less than the market price. In pricier property areas, local authorities will be able to set a bigger discount of 40% or even 50%. Those most a property can cost in the scheme is set at £250,000 (after the discount), or £450,000 in London.
Now, before you get all excited about being able to buy discounted property and turn it over for a hefty profit, let us politely point out that this is very much not the point of the scheme. And anyway, the powers that be are already on to you: each property is sold with a covenant to ensure that the original discount is passed on when the property is sold.
Who will be eligible for the scheme?
There’s a clue in the name: the scheme is designed for first time buyers (i.e. those would qualify for Stamp Duty Land Tax relief and have never bought, inherited or been given a property).
However, the eligibility criteria doesn’t stop here.
Now, here’s where it gets more complicated. Some eligible first-time buyers will be considered more eligible than others. (Animal Farm vibes, anyone?!
These priority buyers include:
- People who already live in the area
- Essential workers, including nurses, teachers, police officers, delivery drivers and supermarket staff
- Those on lower incomes
Members of the armed forces and their families may also be considered priority buyers, and will not need to currently live in the area they want to buy in in order to qualify.
When each property goes on the market, it will only be on offer to those in the priority category for the first three months. If it hasn’t sold in that time, other first-time buyers will get a look in, though, again, some existing homeowners may also be eligible. (If you think this is confusing, don’t blame us. We don’t make the rules.)
Whether the buyers are local or not, key workers or not, first time buyers or not… there’s one criterion we suspect there will be no flexibility on. The eligibility income cap! To qualify for the scheme, buyers must have a combined household income of under £80,000 per year (that figure jumps a bit to £90,000 for London types).
Will the conveyancing process be any different?
It’s fair to say that there will be a few extra hoops to jump through if you go down the route of buying a property from the scheme. First out of the gate, if you’re buying a property directly from a developer (rather than buying a First Homes Scheme home that is being sold on by its previous owner) you will need to pay an application fee to the developer. The amount of the fee is set by the developer, and it will be refunded if your application is not successful.
Once you’ve made an offer either to the developer or to the property’s previous owner, your application will need to be checked by the Local Authority to ensure you’re eligible for the scheme.
Both these boxes need to be ticked before your conveyancer even gets involved. From there, the process should proceed in a reasonably standard way (if there even is such a thing as ‘reasonably standard’ in conveyancing) though there will almost certainly be a bit of extra back-and-forth and paperwork involved.
Finally, your conveyancer will also need to seek approval from the council in order to exchange contracts with the seller. Be prepared for a fair bit of time twiddling your thumbs… we’d bet our last packet of crisps they’ll keep you hanging about longer than you’d like.
Can you rent out the property?
Again, as this is a scheme designed to help first time buyers get on the property ladder, letting the property out is not really the point. Property in the First Homes scheme should be purchased as the buyer’s main residence.
However, life is not always predictable (especially for armed forces buyers, we imagine) and there is some flexibility built into the scheme.
You can rent out a room in the property for as long as you like, so long as you remain living there too and don’t own any other properties. If you wish to rent out the entire property, you can do this for a period of up to two years, so long as your mortgage lender is on board and you’ve notified the Local Authority.
There are some situations where you would be able to let out a property for more than two years. This includes:
- If your employer requires you to move
- If your long-term relationship breaks down
- If you’ve been made redundant
- If you have to move to care for a relative or friend
- If you’re moving to escape domestic violence
What about selling the property?
First things first, you would not need to sell the property if your circumstances change and you’re no longer eligible for the scheme. So, should you win the lottery and give up your job as an essential worker, you’d be fully within your rights to stay put, should you wish to.
However, there are lots of reasons why you might want to sell. If and when this happens, there’ll be a covenant in the deeds to ensure the property is sold with the same discount it was bought with. This means the scheme will continue to benefit other first-time buyers in the future.
The homeowners would be required to get an independent valuation (i.e. not just the estate agent who would be earning the commission) in order to work out what the property would sell for on the open market.
The homeowners would then need to apply the 30%, 40% or 50% discount they originally purchased with before selling it on. Buyers would again be restricted to those who met eligibility criteria for the scheme, including prioritising ‘priority buyers’ for the first three months.
Will you actually be able to get hold of a property?
The First Home Schemes was announced in 2020 and launched in June 2021. The government have made a commitment that 25% of all affordable housing developments from developer contributions should become part of the scheme.
If you think you might be eligible (or even priority eligible), you may well be itching to start perusing Right Move for scheme-designated properties. To that we say… you might need to hold your horses.
Though there are indeed properties available with the scheme nationwide, they are limited. Right Move is a good place to start (you can even use their handy ‘buying schemes’ filter) but there is likely to be a great deal of competition for the properties that are available. You might have more luck contacting developers or your local council directly to find out when – and where – they expect eligible properties to come to the market.
If you’ve got any more questions about home buying schemes like these, or if you’d like to make a bet on our packet of crisps, please do drop us a line.