First Homes and the discount mechanics

A First Home is a new dwelling sold at a discount of at least 30 per cent off its open market value, with that discount held in perpetuity by a restriction on the title so it passes to every subsequent buyer. After the discount is applied, the first sale price must not exceed £250,000, or £420,000 in Greater London. Those two numbers, the percentage and the cap, drive the whole mechanism, and they decide which units on your scheme can sensibly be First Homes at all.

What a First Home is

The product was introduced through national policy in 2021 as a form of affordable home ownership. Three features define it.

The discount is a minimum of 30 per cent off market value, assessed by a valuer at the point of first sale. A local planning authority can require a deeper discount of 40 or 50 per cent through an adopted plan policy where it has the evidence, and some have.

The discount is secured in perpetuity, not for a fixed period and not until first resale. On every subsequent sale the same percentage discount applies to the market value at that time, so a First Home sold at 30 per cent below value in year one is sold at 30 per cent below value in year twenty.

And the price cap bites after the discount, not before. A unit with a market value of £360,000 discounted by 30 per cent sells at £252,000 and fails the £250,000 cap outside London. It needs a deeper discount, or it is not a First Home.

How the discount is secured on title

Two documents do the work. The planning obligation under section 106 of the Town and Country Planning Act 1990 commits the developer to deliver the units as First Homes and sets out the mechanics. A restriction entered against the registered title of each plot then prevents a disposal unless the conditions in the obligation are satisfied.

The practical drafting points matter more than the policy summary.

1. The valuation mechanism needs naming: who values, on what basis, how often it is refreshed, and what happens if the parties disagree.
2. The eligibility checking process needs an owner. Most councils accept a nominated agent or a solicitor's certificate rather than running checks themselves.
3. Mortgagee protection provisions need to be in the obligation, or lenders will not lend against the units.
4. The restriction wording has to allow a sale that complies while blocking one that does not, which sounds obvious and is where conveyancing delays come from.

Get the obligation drafted against the council's own template where one exists. Rewriting it from scratch adds weeks of legal negotiation for no planning benefit, and our note on the format of a viability appraisal submission makes a similar point about working with the authority's documents rather than against them.

Eligibility and local connection

National eligibility criteria apply to every First Home. The purchaser must be a first-time buyer, must have a household income no higher than £80,000 in the tax year before purchase, or £90,000 in Greater London, and must fund at least half of the discounted purchase price with a mortgage or home purchase plan.

That last condition exists to stop cash buyers taking the discount, and it has a side effect worth knowing: a buyer who inherits enough to buy outright cannot use a First Home.

Local planning authorities may add local connection or key worker criteria for a limited initial marketing period, after which the national criteria alone apply. The same kind of time limited local priority can apply on resales. So a scheme in a rural parish can be marketed to people with a local connection first, and then opened up if nobody qualifies.

Price caps and which units to choose

The cap does most of the work in unit selection, and it works against you on larger homes.

The table is arithmetic rather than policy, and it is illustrative. The point it makes is that outside London the practical ceiling on a 30 per cent First Home is a unit worth around £357,000, so on a scheme of larger detached houses the First Homes have to come from the smaller house types or carry a deeper discount.

Deeper discounts have a cost. A 40 per cent discount on a £400,000 unit yields £240,000, which clears the cap but reduces the receipt by a further £40,000 against the 30 per cent case. In a viability appraisal that difference moves straight to the land value, which is why the choice of unit types should be made before the Affordable Housing Statement is drafted rather than after.

Interaction with other affordable tenures

National policy has expected First Homes to make up a proportion of the affordable housing secured through planning obligations, with the balance split between rented and other intermediate products according to the local plan. Where the plan predates the policy, authorities have taken different views about how the proportions interact, and that is a negotiation rather than a calculation.

Two tensions recur. Councils with acute rented need resist substituting First Homes for social rent, because the discount delivers nothing for a household that cannot get a mortgage at all. And registered providers are rarely interested in managing First Homes, which are owned outright, so the delivery route is a sales route rather than a transfer to a provider.

Where the mix is contested, the evidence that moves it is local: income distributions, entry level market prices, and what the discounted price actually buys relative to local earnings. Tie that to the appraisal inputs, as our note on space standards and accessible housing as appraisal inputs does for a related set of policy requirements.

Mortgage lending and the practical sale

Lenders treat a perpetual discount as a restriction on marketability, and they lend against it only where the obligation contains protections they recognise. Check with a broker familiar with discounted market sale before the obligation is completed, not after the first reservation falls through.

Three things lenders look for: a mortgagee exclusion clause that allows a sale free of the restriction if the lender has to repossess and cannot sell within a defined period, a clear valuation basis, and a defined process for confirming buyer eligibility that does not delay exchange indefinitely.

Drafting the obligation and testing viability

Where the required proportion of First Homes, the discount depth and the cap combine to make a scheme unviable, that is a viability argument and it has to be made properly. A Viability Assessment prepared to the approach in national guidance, with the First Homes receipts modelled on the actual unit mix rather than on an average, is the only version of that argument an authority will engage with.

As an illustrative example, a 40 unit scheme outside London with a policy requirement for 30 per cent affordable housing might deliver 12 affordable units, of which three are First Homes. Choosing the three two-bedroom houses with market values near £300,000 keeps every unit inside the cap at a 30 per cent discount. Choosing three four-bedroom units would force a discount above 37 per cent and cost the appraisal more than the smaller units do.

One caveat on policy rather than mechanics: national policy on First Homes has been revisited in successive editions of the National Planning Policy Framework, and the proportion authorities are expected to secure has been under review. The discount, the perpetuity and the caps are the stable part. Confirm the current requirement against the Framework edition in force and the adopted local plan before you fix a mix.

This is general guidance rather than legal advice, so take advice on the obligation and the title restriction from a solicitor before completing. PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval.