First Homes: the discount market tenure explained
First Homes are sold at a discount of at least 30 per cent to market value, with the discount locked to the property in perpetuity by a section 106 restriction rather than held by the buyer.
A First Home is a new-build dwelling sold at a discount of at least 30 per cent to open market value, with that discount tied to the property in perpetuity through a section 106 obligation. The buyer never owns the discount. On resale the property must go to another eligible purchaser at the same percentage below the market value of the day. The First Homes tenure was introduced by a Written Ministerial Statement on 24 May 2021 and sits alongside shared ownership and affordable rent as a form of affordable housing.
For a small developer this matters at two points: when the council sets the tenure split on a site delivering affordable housing, and when an unallocated site might come forward as a First Homes exception site.
What First Homes are and how the discount is secured
The mechanism is a restriction on title, not a grant to the buyer. The section 106 agreement records the percentage discount, the eligibility criteria, the price cap and the procedure for future sales. A restriction is registered at HM Land Registry so the property cannot be transferred without the council confirming the buyer qualifies.
Local authorities may set a discount higher than 30 per cent, commonly 40 or 50 per cent, where the plan evidence supports it. The discount applies to the market value assessed at the time of each sale, which means the discount travels with the property rather than being eroded by house price growth.
Mortgage lending on First Homes works, but not every lender participates and the section 106 wording has to match what lenders will accept. Use the model wording the council offers unless there is a good reason to depart from it, because bespoke drafting is the usual cause of delay at the point of sale.
Eligibility caps and local connection criteria
The nationally set criteria are that the buyer must be a first-time buyer, must occupy the property as their only or main home, and must have a household income below the published cap. There is also a cap on the price after the discount has been applied, set at a higher level in Greater London than elsewhere. Both caps are stated in the Planning Practice Guidance chapter on First Homes, and both have been revisited since the tenure was introduced, so check the current chapter rather than a summary.
Councils may go further. An authority can lower the price cap in its area, raise the discount, and add local connection or occupational criteria for a defined period after first marketing, typically three months, after which the criteria fall away in stages. That tapering is deliberate. It gives local buyers a head start without leaving units unsold.
Armed forces personnel and their bereaved spouses or civil partners are treated differently under the guidance, and local connection criteria cannot be applied to them in the usual way. If your scheme is near a base, read that part of the guidance carefully.
The share of affordable provision expected
The proportion of affordable housing that must be delivered as First Homes has moved since 2021, and it has been treated differently in successive editions of the National Planning Policy Framework. Rather than working from a remembered percentage, take the requirement from two places: the adopted development plan for the area, and the current version of national policy and guidance at the date you submit.
Where an adopted local plan predates the tenure and sets its own tenure split, the plan and national policy can pull in different directions. Section 38(6) of the Planning and Compulsory Purchase Act 2004 requires determination in accordance with the development plan unless material considerations indicate otherwise, and national policy is a material consideration. Working out which documents form the plan for your site is the first step, and the development plan explainer sets out what to look for.
A neighbourhood plan can also set a tenure preference for its area. How much weight that carries depends on whether the plan has been made and how recent it is, which is covered in the note on the weight a neighbourhood plan carries.
First Homes exception sites outside the plan
An exception site is unallocated land, adjacent to existing settlements, brought forward specifically to deliver First Homes. The route exists because the ordinary supply of affordable housing depends on market sites coming forward, and in some areas they do not.
The conditions are tighter than they first appear:
- The site must be outside but adjacent to an existing settlement, and not on land that is protected by a national designation such as Green Belt, a National Landscape or a Site of Special Scientific Interest.
- The scheme must be for First Homes, apart from a small proportion of market housing where that is needed to make the site deliverable.
- The council must be satisfied the site would not otherwise come forward for housing.
- Rural exception site policy takes precedence in designated rural areas, so the First Homes route is not a way around it.
Exception sites are refused more often than they are approved, usually on landscape impact or on the failure to show the site would not have come forward anyway. Treat the deliverability evidence as the heart of the application rather than an appendix.
How the restriction sits in a section 106
The First Homes obligation is a self-contained schedule within the wider agreement. It normally covers the discount percentage, the eligibility and local connection criteria with their tapering periods, the valuation method and who instructs the valuer, the council's approval process for each sale, the mortgagee exclusion clause, and the treatment of the units if they remain unsold after a defined marketing period.
The mortgagee exclusion clause is the one to read twice. It sets out what happens if the lender repossesses, and lenders will not advance without an acceptable version. The unsold-units clause matters just as much on a small site, where a single stalled plot can hold up the whole development.
Where a scheme also triggers Community Infrastructure Levy liability, remember the affordable housing relief is claimed separately and before commencement. Missing that step is an expensive administrative error rather than a policy one.
Practical problems on small sites
On sites of nine dwellings or fewer many authorities take no affordable housing at all, so First Homes only becomes relevant if the council's threshold is lower or the site is in a designated rural area where a reduced threshold applies. Check the adopted plan first.
The second issue is valuation. On a small site with an unusual house type, establishing open market value for the discounted unit is contentious, because there may be no comparable evidence nearby. Agree the valuation method in the agreement rather than leaving it to be argued later.
The third is programme. Every First Homes sale needs council sign-off that the buyer qualifies, and that check takes time. Build it into the sales programme, and ask the council who does the check and what their turnaround is before you exchange on the land.
Where affordable housing is required, the council will expect an affordable housing statement setting out the mix, tenure split and the obligations offered. You can draft one and send it for professional review before it goes into the submission pack.
PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval. This is general guidance, not legal advice; check the position with your local planning authority or a qualified professional before relying on it.
Frequently asked questions
Does the buyer keep the First Homes discount when they sell?
No. The discount is attached to the property in perpetuity by a section 106 restriction registered at HM Land Registry. When the owner sells, the property must be sold at the same percentage below the market value assessed at that time, to another buyer who meets the eligibility criteria. The council checks the buyer qualifies before the transfer completes.
What discount and price cap apply to a First Home?
The national minimum discount is 30 per cent to open market value, and a council can require more where its evidence supports it. A cap on the price after discount also applies, set higher in Greater London than elsewhere. Both figures sit in the Planning Practice Guidance chapter on First Homes, which has been updated since 2021, so check the current version.
Can a council add local connection criteria?
Yes. An authority may add local connection or key worker criteria for a defined period after first marketing, usually tapering in stages before falling away entirely. This gives local buyers priority without leaving homes unsold. Armed forces personnel and their bereaved spouses or civil partners are treated separately under the guidance.
What is a First Homes exception site?
It is unallocated land next to an existing settlement brought forward specifically for First Homes, with only enough market housing to make it deliverable. It cannot rely on nationally designated land such as Green Belt or a National Landscape, and in designated rural areas the rural exception site policy takes precedence. Deliverability evidence decides most of these applications.
Do First Homes apply to sites of fewer than ten dwellings?
Usually not, because many authorities only seek affordable housing above a threshold of ten units. Lower thresholds apply in some designated rural areas and in plans that set their own figure. Read the adopted local plan for the site before assuming a small scheme is outside the requirement.
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.