First Homes: the discount, the cap and the conditions

First Homes are discounted market sale units, sold to eligible first-time buyers at a minimum of 30 per cent below market value, with the discount secured in perpetuity by a planning obligation. The first homes discount conditions are set nationally rather than locally, which makes the product unusually prescriptive compared with the rest of the affordable housing picture, and it is the national price caps rather than the discount itself that cause most of the difficulty on site.

National policy expects First Homes to make up at least 25 per cent of the affordable housing units secured through planning obligations. That requirement sits on top of whatever tenure split the local plan asks for, which is where the negotiation starts.

The minimum discount and how it is applied

The discount is a minimum of 30 per cent against the open market value of the unit. Local planning authorities can require a deeper discount of 40 or 50 per cent where they can justify it through evidence of local need and affordability, so check the development plan and any supplementary document before assuming 30 per cent.

Market value has to be established by a valuation, and the basis of that valuation should be agreed with the council in the obligation rather than left to the first sale. Specify the valuer's qualification, the basis of valuation and who pays.

The discount applies to the unit, not to the scheme. Each First Home is valued and discounted individually, which means a mix of house types produces a mix of discounted prices. That matters for the appraisal, because the revenue line is a schedule rather than a single rate.

Price caps and regional variation

After the discount has been applied, the sale price must not exceed £250,000, or £420,000 in Greater London. Those are national figures and they are not indexed automatically, so confirm the current position in the guidance before relying on them.

The cap is what bites in higher value areas. On a unit with a market value of £400,000 outside London, a 30 per cent discount gives £280,000, which is above the cap. The practical consequence is that the discount has to deepen to around 37.5 per cent to reach £250,000, and the appraisal has to carry that.

This is an illustrative calculation using published policy figures, not a valuation. The point it makes is structural: in high value markets the cap converts First Homes into a much deeper discount than the headline suggests, and selecting the smallest unit types for the First Homes allocation is the usual response.

Eligibility conditions on first and subsequent buyers

The purchaser must be a first-time buyer. Household income in the year before purchase must not exceed £80,000, or £90,000 in Greater London. And the buyer must have a mortgage or home purchase plan for at least half of the discounted purchase price, which exists to stop cash buyers taking the units.

Councils may add local eligibility criteria for an initial marketing period, commonly a local connection or a key worker requirement, after which the criteria fall away and the unit is offered more widely. The obligation needs to set out that period and the sequence clearly, because a developer left unable to sell a unit to anyone is in an unhappy position.

Every subsequent sale is subject to the same eligibility rules and the same percentage discount. So a First Home sold on in ten years is still a First Home, at the same discount against the then market value, to a buyer who still has to qualify.

Securing the discount in perpetuity

The mechanism is a section 106 obligation, supported by a restriction on the title. Two drafting points decide whether the units are actually deliverable.

The first is mortgagee protection. Lenders need to know what happens on repossession, and the obligation has to set out a clear position, usually allowing a sale free of the restriction after a defined marketing period if no eligible buyer is found. Without that, the units are difficult to finance.

The second is the eligibility verification process. Someone has to check first-time buyer status, income and the mortgage requirement at each sale, and the obligation should name who does it and what evidence is accepted. Councils vary in whether they take that role on.

Obligations still have to satisfy regulation 122 of the Community Infrastructure Levy Regulations 2010: necessary to make the development acceptable, directly related and fairly and reasonably related in scale and kind. A First Homes obligation that goes beyond the national product risks failing those tests.

The share of the affordable offer it occupies

The 25 per cent minimum is a share of the affordable housing units secured through planning obligations, taken before the remaining tenures are split according to local policy. On a scheme delivering 20 affordable units, five would be First Homes and the other 15 would follow the plan's split between social or affordable rent and intermediate tenures.

That displacement is the main policy tension. Councils with acute rented need resist losing rented units, and the arithmetic of a small affordable allocation can make the split awkward. Setting out the calculation explicitly in the Affordable Housing Statement is better than leaving the officer to derive it.

Where the numbers do not work, the discussion moves to viability, and the appraisal has to show the revenue effect of the discount and the cap on each unit type rather than a blended assumption. The structure that work should take is covered in viability appraisal submission format.

Mortgageability and lender treatment

A perpetual discount restriction is unusual for a mortgage lender, and whether a particular lender will lend against it depends on how the obligation is drafted and whether their criteria accommodate the restriction. This is a legal and commercial question, not a planning one, and it is worth resolving before the obligation is signed.

Three things help. Using the standard form of mortgagee protection clause the council has accepted before. Agreeing the marketing period and the fallback sale route in the deed rather than in a side letter. And confirming with at least one lender that the drafting is acceptable to them, in writing, before completion.

Developers who leave this to the sales stage find out late, and a First Home that cannot be mortgaged is a unit that cannot be sold to the buyers it was designed for.

Where the product has proved difficult

Three recurring problems are worth anticipating. In high value areas the cap drives the discount well beyond 30 per cent, which falls straight onto land value. In areas with severe rented need, the 25 per cent share displaces tenures the council wants more. And the administration of eligibility checks on resale is a long-term obligation that nobody enjoys owning.

None of that makes the product unworkable. It does mean the First Homes element should be priced, drafted and allocated to unit types early, rather than being treated as a late adjustment to the affordable schedule. Where the council challenges your appraisal, expect scrutiny of the valuation basis, and the process behind an independent review of a viability appraisal will test exactly these inputs.

A draft Viability Assessment can set out the structure and the policy references, with the valuation inputs left to a RICS qualified valuer, which is what councils expect for this work.

This is general guidance, not legal advice. Check the position with your local planning authority or a qualified professional before relying on it, and confirm the current discount, income and price cap figures in the published guidance.

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