Will the new First Homes policy address the issue of housing affordability?

Developers should be aware that as of 28 June 2021 (and subject to the transitional provisions summarised below), 25% of all affordable housing on any site must comprise First Homes. The following is a brief summary of the new policy, and consideration of some of its likely effects.

What is a First Home and who is eligible?

A First Home is a new form of affordable housing. The key criteria are that it must be:

  • discounted against the market value by at least 30%. In Greater London the discounted price must not exceed £420,000. Elsewhere in England, the discounted price must not exceed £250,000.
  • The Government has drafted a model restriction on title to ensure that all future sales of the unit are at the same level of discount to the market value.
  • Purchased by a first-time buyer (as defined in Schedule 6ZA of the Finance Act 2003, para. 6) with a combined household income of no more than £90,000 in Greater London or £80,000 elsewhere, using a mortgage / home purchase plan for at least 50% of the discounted value.
  • The sole or primary residence of the purchaser. In certain circumstances it can be let out, but the home is not to be used for investment or commercial gain.

Subject to evidencing need and viability, Local Planning Authorities (LPA) can increase the level of discount to either 40% or 50%. They can also impose additional eligibility criteria such as a lower income cap, priority for first time buyer key workers or a local connection requirement. Government guidance advises that it is up to the LPA to choose the most appropriate way of achieving this (whether by interim policy statement or updating the relevant local plan). NB: locally imposed criteria fall away after 3 months of unsuccessful marketing of the relevant unit.

Of the remaining 75% affordable housing on any site, local authorities are advised to prioritise securing their policy requirements on social rent.  Other tenure types should be secured in the relative proportions set out in the local plan.

First Homes are a sub-category of affordable home ownership for the purposes of paragraph 64 of the NPPF (10% of all homes on a site to be an affordable home ownership product).

As a form of affordable housing, policies which exempt developments from requirements to provide affordable housing apply equally to First Homes.  Unsurprisingly, First Homes are also exempt from CIL (CIL Regulation 49(7A)).

The route to First Home provision

First Homes for most developments will be secured in the usual way via s. 106.

In addition, the NPPF ‘Entry Level Exception Site’ policy will be replaced with a ‘First Homes Exception Site’ policy requiring LPAs to support development of first homes on exception sites which are adjacent to existing settlements, proportionate in size to them, not in an area protected as a National Park, AONB or Green Belt and where the development complies with local plan design policies. The policy expressly allows a “small proportion of market homes” at the LPA’s discretion, where they are necessary to enable the deliver of First Homes within grant funding. A small proportion of other forms of affordable housing will also be allowed where there is a significant identified local need.

Transitional Provisions

While the policy comes into effect on 28 June 2021, it will not apply to existing permissions or applications which are determined (or where a right to appeal against non-determination has arisen) before 28 December 2021, nor to planning applications where there has been a “significant pre-application engagement” and which are determined before 28 March 2022.

Equally, it will not apply to draft Local Plans and Neighbourhood plans which have either been submitted for examination before 28 June 2021 or reached their publication stage by that date, and are submitted for examination by 28 December 2021.

Impact

As with any material change to policy, it is likely that the First Homes policy will prompt a flurry of activity to ensure that existing applications are determined (or appealed for non-determination) before the deadlines provided by the transitional arrangements.

There is some concern that in parts of England, the discounted price caps will exceed the 30%, 40% or 50% discount requirement, with knock on impacts on scheme viability. However, bear in mind that the 25% requirement of all affordable housing is a policy, not a statutory, requirement, and is therefore open to negotiation.

Even with the discount, it is likely that the First Homes product will still be out of reach for many people looking for affordable housing, particularly in higher value areas. It remains to be seen how effective this new policy will be in addressing the issue of housing affordability.

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Disclaimer: Nothing in the Legal Insights section and this blog is intended to provide legal or other professional advice and, if readers are interested, they should consider taking separate legal or other professional advice accordingly.

Simon Kelly

Specialist in Planning and Property Development

E: [email protected]
T: +44 (0)845 257 9449