First Homes: the proportion required and the discount

First Homes are discounted market sale homes that count towards the affordable housing requirement, and national policy expects at least 25 per cent of the affordable housing secured through planning obligations to be delivered as First Homes, at a discount of at least 30 per cent of open market value, with a first sale price cap of £250,000 outside London and £420,000 in London after the discount. The discount is held in perpetuity by a restriction on the title and secured through the section 106 agreement.

The requirement came in through a written ministerial statement of 24 May 2021, taking effect for applications from 28 June 2021, with transitional arrangements for schemes already in the system. Local plans and interim policy statements apply it differently, so check the authority's own position as well as the national one before fixing the mix.

What a First Home is

A First Home is sold at a discount to a first time buyer, with the discount passed on to every subsequent purchaser rather than released on resale. That perpetuity is what allows it to count as affordable housing.

Three features define it:

• A discount of at least 30 per cent of open market value, which an authority can set higher, with 40 and 50 per cent used in high value areas where the local plan or interim policy provides for it.
• A cap on the first sale price after the discount, currently £250,000 outside London and £420,000 within it, which has the effect of excluding larger units in expensive areas from the product altogether.
• A restriction on the title, usually a restriction against disposal without compliance with the discount and eligibility criteria, backed by the section 106 agreement.

Because the cap applies to the price after discount, the maximum market value a unit can have and still work as a First Home is a function of the discount. At a 30 per cent discount, the cap bites on units with an unrestricted value above roughly £357,000 outside London. Push the discount to 50 per cent and units valued up to £500,000 can be delivered within the cap. That arithmetic, rather than policy preference, often determines which plots are nominated.

The proportion of affordable housing it takes

The 25 per cent is a proportion of the affordable housing, not of the scheme. On a scheme of 100 dwellings with a 30 per cent affordable housing requirement, the affordable element is 30 units and First Homes account for at least eight of them, with the remaining tenures set by the development plan.

Two points generate most of the argument with officers. First Homes are normally expected to be delivered within the first phase of affordable housing rather than at the end, which matters on a phased scheme and overlaps with the issues in our note on phasing a large scheme without gaming thresholds. And the balance of the affordable housing is for the authority to determine, with many authorities prioritising social and affordable rent, so taking the First Homes element out of the rented allocation is usually resisted.

Set out the arithmetic explicitly in the Affordable Housing Statement: total units, affordable requirement, First Homes number, tenure split of the remainder, unit types and the plots nominated.

The figures in that table are illustrative arithmetic, not a policy position for any particular authority.

Eligibility and local connection criteria

Purchasers must be first time buyers, and where a couple buys, neither can have owned a home before. A household income cap applies, set nationally at £80,000 outside London and £90,000 in London, and a mortgage requirement means the purchaser has to fund a defined minimum proportion of the discounted price by mortgage or home purchase plan.

Authorities may add local connection and key worker criteria for an initial marketing period, with a defined time limit after which the criteria fall away and the unit is marketed to any eligible buyer. Where that applies, the section 106 has to say what the criteria are, how long they run and what happens when the period expires.

The practical consequence is sales risk. A narrow local connection criterion in a slow market can leave units unsold for months, so the agreement should contain a clear cascade: local criteria first, then wider eligibility, then a mechanism for dealing with a unit that cannot be sold at all.

Securing it through section 106

The obligation does the work, and the drafting matters more than the policy debate.

1. Identify the First Homes by plot on a plan annexed to the agreement, with the number, type and size of each.
2. State the discount as a percentage of open market value, with the valuation method and the valuer's qualification.
3. Include the eligibility criteria, the marketing period for any local connection requirement and the cascade on expiry.
4. Provide for the title restriction and for the authority's consent to disposals, with a mechanism that does not stall a conveyance.
5. Set the delivery trigger, usually completion of a stated proportion of the market units or a stated plot number.
6. Deal with the mortgagee in possession position, since lenders will not lend on a unit whose restrictions cannot be released on repossession.

That last item is where agreements fail in practice. A restriction with no mortgagee exclusion makes the unit unmortgageable, which defeats the product.

Sites where the requirement does not apply

The written ministerial statement set out exclusions, and the familiar ones are build to rent schemes, specialist accommodation for particular groups, student accommodation, self build and custom build, community led development, and development on First Homes exception sites, which have their own policy. Transitional arrangements covered applications already submitted or with a resolution to grant at the relevant date.

Viability is the other route. Where a scheme cannot support the policy compliant affordable housing at all, the First Homes element is reduced along with everything else, and that is a Viability Assessment question rather than a tenure question. Expect the authority to ask whether the First Homes proportion has been maintained within a reduced total.

Where self build or custom build plots form part of a larger scheme, the duties described in our note on self build and custom build duties on larger sites run alongside this.

Effect on the wider affordable mix

First Homes shift the affordable mix towards ownership, and that has consequences worth being straight about in the Planning Statement.

A registered provider taking the rented units will usually not want the First Homes, because they are market sale products with a restriction rather than social housing, so the developer sells them. That changes the cash flow, removes the certainty of a bulk transfer and adds sales and marketing cost on units with a capped price.

It also changes who is housed. A household earning close to the income cap and able to raise a deposit on a discounted price is in a different position from a household on the housing register, and authorities with acute rented need resist any erosion of the rented element for that reason. Policy on this has been reviewed more than once, so confirm the current national position and the authority's adopted or interim policy as at the date you apply.

This is general guidance, not legal advice; check the position with your local planning authority or a qualified professional before relying on it. PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval.