First Homes price caps and the eligibility tests
First Homes carry a minimum 30 per cent discount, a capped price after that discount and an income test for buyers, all secured through the section 106 agreement.
A First Home is a new dwelling sold at a discount of at least 30 per cent to open market value, with the discounted price capped at £250,000 outside Greater London and £420,000 in Greater London, and with the discount passed on to every future purchaser through a planning obligation. Buyers must be first-time buyers, must fund at least half the purchase with a mortgage or home purchase plan, and must have a household income below the national cap of £80,000, or £90,000 in Greater London, unless the authority has set a lower local figure.
National policy expects First Homes to make up 25 per cent of the affordable housing secured through planning obligations on a qualifying site. Everything else about the tenure follows from those two numbers, the discount and the cap, and from the fact that both bind in perpetuity rather than on first sale only.
The minimum discount and how it is applied
The discount is calculated against open market value for the dwelling as built, assessed by a qualified valuer, not against a scheme-wide average or a build cost. A local planning authority may require a deeper discount of 40 or 50 per cent where its evidence supports it, and where it does, the deeper figure becomes the policy requirement for sites in its area.
Two points catch developers out. The valuation is unit-specific, so the mix matters: a three-bedroom house at a 30 per cent discount can still breach the cap while a one-bedroom flat on the same site sits comfortably below it. And the discount applies to the dwelling with the specification it is actually sold with, so upgrades and options cannot be used to lift the market value baseline.
Where the discounted price would still exceed the cap, the discount has to deepen until the cap is met. The cap is an absolute ceiling, not a target.
National price caps after discount
| Location | Price cap after discount | National income cap |
|---|---|---|
| Greater London | £420,000 | £90,000 household income |
| Rest of England | £250,000 | £80,000 household income |
These are the national figures set out in the planning practice guidance on First Homes. They are national policy rather than statute, which means they can be revised, so check the current guidance before you fix a price list or run an appraisal on a long programme.
The cap bites hardest in high value districts outside London. In a market where a modest three-bedroom house sells above £400,000, a 30 per cent discount does not reach £250,000, and the practical answer is either smaller First Homes units or a deeper discount on larger ones. That choice belongs in the appraisal at the outset, because it changes the revenue line materially.
Locally set lower caps and income limits
Authorities may set lower price caps and lower income caps where local evidence on incomes and house prices supports it, and several have. A lower income cap narrows the eligible pool, which affects absorption rates and therefore the marketing period, and a lower price cap can push the required discount well beyond 30 per cent.
Check the position in three places: the adopted local plan or an affordable housing supplementary planning document, the authority's published First Homes policy statement if it has one, and recent section 106 agreements on comparable sites in the district. The last of those tells you what the authority actually accepts rather than what it asks for.
Eligibility criteria for purchasers
The national criteria are narrower than people assume, and conveyancers check them at the point of sale.
- The purchaser must be a first-time buyer, using the definition applied for stamp duty land tax relief.
- Household income in the tax year before the purchase must be below the applicable cap.
- A mortgage or home purchase plan must fund at least 50 per cent of the discounted purchase price, which rules out a cash buyer using the discount as an investment.
- The home must be the purchaser's only or main residence.
- Local connection or key worker criteria may apply on top where the authority has set them, usually for a limited initial marketing period.
The 50 per cent mortgage requirement is the one that surprises buyers. It exists to stop the discount being captured by someone who does not need a mortgage, and it has no exceptions written into the standard model wording.
Securing the discount in perpetuity
The restriction sits in the section 106 agreement and binds the land, with a restriction on the title register so that the discount and the eligibility criteria apply on every resale. The standard mechanism prices each resale at the same percentage discount to the then open market value, which means the First Home keeps its relationship to the market rather than drifting.
Lenders need the obligation to be in a form they will accept, including a mortgagee exclusion clause that lets a lender sell free of the restriction after a defined process if it has to enforce its security. Without it, the units are unmortgageable and the tenure fails in practice. Ask the authority for its model clauses early, and get the lender's view on them before the agreement is engrossed.
The Affordable Housing Statement should set out the tenure split, the discount applied, the units proposed as First Homes with their expected values, and how the cap is met on each one. An authority that has to work that out from a price schedule will ask for a revision.
Marketing and the restriction on resale
The guidance sets a marketing period during which a First Home must be offered to eligible purchasers before any relaxation can be considered for an unsold unit, with local connection criteria falling away before the wider eligibility criteria do. The periods and the sequence are set nationally and have been adjusted, so take them from the current guidance rather than from an older agreement.
On resale the seller markets at the discounted price to an eligible purchaser, and the authority or its monitoring agent checks eligibility. Build the monitoring mechanism into the agreement with a named process and a response period, because an unresponsive monitoring arrangement stalls resales and generates complaints that land back with the developer.
Interaction with other affordable tenures
First Homes are expected to account for a quarter of the affordable housing secured by obligation, and the remaining three quarters follows the local plan policy on tenure split, normally weighted towards social or affordable rent. Where the authority's policy predates the First Homes guidance, the two can pull in different directions, and that tension is usually resolved through negotiation rather than by a clear rule.
Viability is the usual flashpoint. A First Home generates more revenue than a rented unit transferred to a registered provider, so substituting First Homes for rent typically improves the appraisal, and authorities know it. Where you are arguing that policy-compliant affordable housing makes the scheme unviable, the tenure assumptions will be examined closely, and the discipline set out in independent review of a viability appraisal applies to the First Homes inputs as much as to the sales values.
Present the numbers in the format the authority expects. The conventions covered in viability appraisal submission format matter here, because a Viability Assessment that buries the First Homes assumptions in a spreadsheet tab invites a request for clarification and a delay.
Sites below the small sites threshold do not usually attract affordable housing contributions at all, and rural exception sites run on a different policy basis. Check whether the site is caught before designing a tenure mix around it.
This is general guidance, not legal advice. The First Homes price caps, income caps and marketing periods are set in national guidance and can change, so verify the current figures and check your authority's local policy before relying on them.
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Frequently asked questions
What is the minimum First Homes discount?
At least 30 per cent off open market value, assessed unit by unit by a qualified valuer. A local planning authority can require a deeper discount of 40 or 50 per cent where its local evidence supports it, and where the discounted price would still exceed the national cap, the discount has to deepen further until the cap is met.
What is the First Homes price cap?
After the discount is applied, the price must not exceed £250,000 outside Greater London or £420,000 within Greater London. These are national figures in the planning practice guidance rather than statute, and authorities may set lower local caps, so confirm the current national figures and the local policy before pricing units.
Who is eligible to buy a First Home?
A first-time buyer, using the stamp duty land tax definition, with household income in the previous tax year below the applicable cap, buying the home as their only or main residence and funding at least half the discounted price with a mortgage or home purchase plan. Local connection or key worker criteria may apply during an initial marketing period.
Does the discount apply on resale?
Yes. The section 106 agreement binds the land and a restriction is placed on the title, so each resale is at the same percentage discount to the open market value at that time, to another eligible purchaser. That is what makes the discount perpetual rather than a one-off subsidy to the first buyer.
How many of the affordable homes have to be First Homes?
National policy expects First Homes to make up 25 per cent of the affordable housing secured through planning obligations on a qualifying site. The remaining 75 per cent follows the local plan tenure policy, usually weighted towards rented products, and the interaction between the two is often negotiated on a scheme by scheme basis.
Sources and further reading
This article is general guidance about the planning system in England and, where stated, the rest of the UK. It is not legal or professional advice. Check your local planning authority’s validation requirements and take professional advice for your specific site.