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Brokers optimistic about First Homes scheme but express concerns over rollout

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  • 18/06/2021
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Brokers optimistic about First Homes scheme but express concerns over rollout
The UK government’s First Homes scheme is widely seen as a positive for the market as it provides added support for key workers and new-build properties, but concerns remain about the rollout.

 

Connells’ new-build mortgage services partner Louise Jacob said: “I think it can only be seen as a positive thing, giving customers another option to fulfil their dream of getting onto the housing ladder.”

Coreco’s managing director Andrew Montlake said that the scheme looked very promising for first-time buyers, especially for key workers who were often priced out of living in cities they worked in.

However, he said that there were questions about how the valuation process would work and how advisers would approach the scheme, as it primarily focuses on a property rather than a mortgage.

The scheme launched earlier this month, with Chorley Building Society, Darlington Building Society, Halifax, Leeds Building Society, Mansfield Building Society, Nationwide Building Society and Newcastle Building Society all participating.

It aims to help first-time buyers and key workers get on to the property ladder, with a minimum 30 per cent discount on market prices on certain new builds, with the discount to stay in place upon resale. Local authorities and neighbourhood planning groups also have discretion to give 40 per cent or 50 per cent discount if they can “demonstrate a need”.

As part of the scheme, the price for properties must not exceed £250,000 outside of London, or £420,000 in Greater London.

Eligibility requirements indicate a combined annual household income should not exceed £80,000 or £90,000 in Greater London, and the purchaser should have a mortgage or purchase plan to fund a minimum of 50 per cent of the purchase price.

The government has said the First Homes scheme should account for 25 per cent affordable housing units delivered by developers.

The first batch of 12 First Homes went on the market last week in Bolsover, East Midlands, with the government pledging to build a further 1,500 homes by the autumn.

 

First Homes compared to other schemes

 

Jacob said the First Homes initiative may prove to be cheaper in the long-run than the shared ownership scheme.

She explained that whilst shared ownership was a “great scheme” for people with lower deposits, after rents, service charge and mortgage costs it may not be the most cost-effective way to own a home.

She said: “The government’s First Home scheme offers customers another route that may work out cheaper for customers, both on a monthly basis and in the long run.”

Jacob continued that the introduction of 95 per cent loan to value (LTV) mortgages had been a boon to the market, but this did not typically apply to the new-build sector as it can be excluded as a property type for those with a lower deposit.

Lisa Burns-Kent, new-build sales director at Meridian Mortgages, added it would not be a single solution for brokers but said the “more tools in our tool kit the better”.

She continued: “As a broker you have to consider so many requirements. People may not be eligible for Help to Buy or shared ownership, so there is definitely a place for it.”

Greg Cunnington, Alexander Hall’s director of lender relationships and new homes, said the scheme was a “very welcome addition to the market” but added that due to its various restrictions and requirements it would probably not be as popular as Help to Buy in terms of volume.

He hoped that combined with increased mortgage product availability, suitable affordability criteria for lower deposit mortgages and private schemes, initiatives like First Homes and shared ownership would give low deposit borrowers increased options. He continued that this would be especially important once Help to Buy comes to an end.

 

Customer demand and  rollout

Brokers said there was definite interest in the scheme, with customers already getting in touch with enquiries but added it was still early days as properties needed to be built and further government guidance is needed.

Jacob said she already had clients calling and looking to leverage this scheme over Help to Buy. She also said it had definite appeal due to the discount, as customers were being priced out of areas they lived in and forced to move further away.

However, as the scheme is in its infancy, developers are still getting to grips with it and noted that brokers would need to step up.

Jacob added: “As the scheme is currently in its very early days, I don’t have any developers using it yet. However, when any new scheme is announced, it’s down to people like me (new homes mortgage specialists) to educate developers, local housing associations and councils on how the scheme works, how it can fit into their business model and what the benefits are.”

This was echoed by Burns-Kent who said: “The government [is] very good at launching these things and bringing them to the market, but they need to get lenders and builders on board first.”

“I have got builders coming to me and asking how they can get involved. The guidance needs to be very clear,” she added.

She added that further detail would be needed as to when the scheme would go nationwide, and information was currently “drip-feeding” through.

These concerns were also brought up in a report from the Housing, Communities and Local Government committee last week, which said the First Homes scheme sounded promising, but the government needed to outline its timetable as soon as possible as to when properties would be available. It also said local authorities should have discretion on the proportion of homes built which would be First Homes.

Montlake added: “The proof will be in the proverbial pudding and it’s important that those looking at this type of scheme really understand the details around it and the limitations on resale when they want to move on. Let’s hope it does not cause as many issues as it attempts to solve.”

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