First homes: the discount and how the obligation works

A First Home is a new-build house or flat sold at a discount of at least 30 per cent below its open market value, with that discount locked in for every future sale by a planning obligation and a restriction registered against the title. The buyer must be a first-time buyer, and national eligibility rules cap both the purchase price after discount and the household income. The discount is not a grant and it never unwinds: when the owner sells, the same percentage comes off whatever the property is then worth.

For a developer, the first homes planning obligation is mostly a drafting and marketing exercise. The valuation, the restriction and the lender clauses are where schemes get stuck.

What a first home is and the minimum discount

The product was introduced through a written ministerial statement in May 2021 and set out in national planning guidance. Three features define it.

The discount is a minimum of 30 per cent off market value, and a local planning authority can require a deeper discount, commonly 40 or 50 per cent, where local evidence supports it. The market value is the unrestricted open market value, established by a valuation carried out on a recognised professional basis, not the developer's asking price.

The discount applies in perpetuity. Each subsequent sale must be at the same percentage below the then market value, to another eligible buyer.

The homes are new build. The product is a form of discounted market sale housing, and it is owned outright by the purchaser, with no rent on a retained share and no landlord.

Price caps and local eligibility criteria

National criteria set the outer limits. After the discount is applied, the purchase price must not exceed a national cap, with a higher cap in Greater London, and the buyer's household income in the tax year before purchase must not exceed a stated ceiling, again higher in London. The buyer must be a first-time buyer as defined for stamp duty purposes, and must fund at least half the discounted price with a mortgage or home purchase plan, which prevents the product being bought outright as an investment.

Those figures have been revisited since the product launched, so check the current guidance rather than a figure quoted in an older article, and check whether your authority has set lower caps of its own.

Authorities may add local criteria for an initial marketing period: a lower price cap, a lower income cap, a local connection requirement, or priority for key workers. Those local criteria fall away after the stated period, leaving only the national ones. Where a home remains unsold after an extended marketing period, the guidance allows the seller to approach the authority about alternative arrangements, and the section 106 should set out what those are rather than leaving it to negotiation later.

The proportion within an affordable requirement

The 2021 statement introduced an expectation that a quarter of affordable homes secured through section 106 should be First Homes. That expectation has been revisited in subsequent editions of the Framework and in ministerial statements, and the Framework itself was re-issued most recently in August 2026 with policy-coded chapters.

So treat any remembered percentage as a starting point and verify three things before scoping a scheme: the current national position, the adopted local plan policy, and what the council's housing team is actually asking for on comparable applications in the borough. Committee reports from the last six months are the most reliable of those three.

The tenure interaction matters as much as the percentage. First Homes sit in the home ownership part of an affordable requirement, so a larger First Homes proportion reduces the rented element. Housing teams with long waiting lists resist that, which is why the tenure split is negotiated alongside the product mix rather than after it.

How the discount is secured in perpetuity

Two instruments work together, and both are needed.

The section 106 agreement obliges the developer to sell the identified plots as First Homes at the specified discount to eligible purchasers, and to impose the restriction on each transfer. The restriction is then registered against the title at HM Land Registry, preventing a disposition being registered unless a certificate of compliance is provided confirming the sale meets the First Homes criteria.

Get the plot schedule right. The obligation should identify units by plot number and drawing reference, state the bedroom count and floor area of each, fix the discount percentage, and tie occupation of market units to delivery of the First Homes through staged triggers.

Watch the valuation mechanism. A clause that says market value is to be agreed between the parties, with no default, produces a standoff at the point of sale. Better drafting names the valuation basis, requires an independent valuer where the parties disagree and sets a timescale.

Mortgage lender requirements

A discounted sale product only works if buyers can borrow against it, and lenders are conservative about restrictions on title.

The model obligation includes protection allowing a lender in possession to sell free of the restriction in defined circumstances, usually after the property has been marketed to eligible buyers for a stated period without success. Deviate from that wording and you may find lenders declining, which is discovered at reservation stage with a buyer already committed.

Test the drafting with the lenders your sales team expects to encounter before the agreement is completed. It is a short conversation and it prevents a plot sitting unsold for a year.

Marketing and the eligibility check

Marketing is a contractual obligation, not a sales choice. The section 106 usually requires the homes to be advertised through defined channels for a defined period at the discounted price, with records kept.

Eligibility is checked before exchange, and somebody has to do it. The usual evidence set covers proof of first-time buyer status, income evidence for the relevant tax year, a mortgage offer confirming the required proportion of borrowing, and confirmation against any local connection criterion still in force. Councils differ on whether they run the check, delegate it to an agent or accept a solicitor's certificate, so establish the process while the agreement is being drafted.

Build the timetable into the sales programme. An eligibility check that takes three weeks on every plot changes the cashflow assumption behind the appraisal.

Where the product does not work locally

Three situations recur.

In high value areas, a 30 per cent discount still leaves the price above the national cap, so the authority has to require a deeper discount. At 50 per cent the product starts to compete with shared ownership on affordability while costing the scheme considerably more, and a Viability Assessment may be needed to show what the scheme can carry.

In lower value areas, the discounted price may sit close to open market prices for existing stock, so the product attracts little interest and the homes sit unsold through the marketing period.

And in authorities with acute rented demand, the housing team may simply prefer rented tenures and resist any home ownership product beyond the national minimum. That is a policy argument to have at pre-application stage, supported by the council's own housing needs evidence and by what its published infrastructure funding statement shows about delivery.

Smaller schemes have their own arithmetic. Where a site produces a fractional affordable requirement, the outcome is often a commuted sum rather than a unit, and the same logic that governs open space and play space contributions on small schemes applies.

This is general guidance, not legal advice; check the position with your local planning authority or a qualified professional before relying on it.

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