A government scheme is offering first-time buyers discounts of between 30% and 50% on new homes, but experts fear that restrictions on resales and other complexities may dampen its appeal.
The First Homes scheme will be available to borrowers who would not otherwise be able to buy, with a maximum household income of £80,000 in England.
Properties must cost no more than £250,000 once the discount has been applied. In London, household income is capped at £90,000 and the cost of the property at £420,000 after the discount.
Local authorities can set higher discounts of 40% or 50% and set lower price caps if they can demonstrate a need to do so in their area.
A quarter of all the affordable homes that housebuilders are required to supply under planning rules are to be designated as First Homes under the new scheme.
Borrowers must be using a mortgage when they buy because the government wants to deter investors from trying to use the scheme.
In order to ensure that future generations of buyers can also benefit, homes sold through the scheme will be subject to restrictions, which mean the original percentage discount must be applied against current values at that time. This condition will be imposed via a legal mechanism, which applies “in perpetuity”.
Mortgage lenders that are looking to recoup their losses after a repossession will be exempt from this requirement, although any gain they make in that scenario will have to be returned to the local authority.
Housing expert and DesignsOnProperty.co.uk managing director Kate Faulkner welcomes the scheme, but has concerns about how it will be communicated to buyers.
“Overall, anything that helps people on the ladder in areas where support is required is good, especially if it encourages new-builds for future generations,” says Faulkner.
But she thinks a huge effort is needed from government, the industry and the media to ensure people understand how the scheme works.
“The fact that there will be local differences will cause further confusion, so this needs to have a national and localised communications strategy,” she says.
“First-time buyers are already incredibly confused and suspicious of government initiatives to help them on the ladder, and the industry is not as well trained as it should be on the pros and cons either.”
With a plethora of affordable housing and shared-ownership schemes on offer, many of which have been rebranded and redesigned under successive governments, it is extremely difficult for first-time buyers to determine which one suits them best, she says.
Faulkner supports the different price caps for London and the rest of England, but warns that, unless these caps are retained as prices move upwards, properties will become increasingly unaffordable even with the 30% discount.
She says the fact that local authorities can set lower caps could also be helpful in making more homes affordable, particularly in London where 20% Help to Buy equity loans were not enough to get many buyers onto the first rung of the ladder.
However, Faulkner also worries that this type of scheme fixes prices because first-time buyers are unable to negotiate what they pay for a property, which can create an unnecessary premium.
“It is good that the government has specified that the properties should be ‘physically indistinguishable from the equivalent market homes in terms of quality and size’,” she says.
“I also welcome the fact that key workers are being prioritised.”
Just Mortgages new-build specialist David Spencer feels that the scheme’s complexity is likely to be a deterrent to buyers despite the generous discounts. He says the main problem is the fact that there are legal restrictions on selling the property because of the need to pass on the discount. This means the pool of potential buyers to whom the homeowner can sell is more limited. That is a concern for both the buyer and the mortgage lender, he explains.
“The discount is a great idea from an affordability point of view,” says Spencer. “But from a buyer perspective when there have been schemes like this in the past they have not been popular because either buyers did not understand them or they didn’t want to buy a property with that kind of restriction on it.”
Some critics have warned that the initiative could undermine the supply of social rented homes because the proposals require developers to set aside a quarter of the affordable housing they are obliged to create as discounted homes to be sold under this scheme.
Detractors argue this could reduce the share of homes given to housing associations to provide social rented options for the poorest families who are unable to buy.
However, in a statement the government says it recognises “the importance of social rent as part of the affordable housing tenure mix.
“A local authority should prioritise securing their policy requirements on social rent, once they have secured the 25% First Homes requirement”.
