The government has announced a new scheme intended to help first-time buyers purchase a new-build home. ‘Your First Home’ would combine a 2.5% buyer deposit with a government-backed equity loan, while also seeking to stimulate demand for new housing.
Further details are expected in the upcoming autumn budget. For now, the announcement provides an outline of how the scheme could work and who may benefit.
Under the current proposal, eligible first-time buyers in England would be able to purchase a new-build home from a participating developer with:
A deposit of 2.5% of the purchase price.
A government-backed equity loan equal to 20% of the property’s value.
An initial interest-free period on the equity loan.
Household income and local property price caps are expected to apply. These are intended to target and support buyers who would otherwise struggle to obtain mortgage finance without help from family members.
Developers would be expected to join the scheme and contribute towards its operating costs. The level and form of that contribution have not yet been confirmed..
Mortgage affordability remains a significant barrier for first-time buyers. At the same time, increased construction and borrowing costs have placed pressure on developers and the supply of new homes.
The scheme is intended to address both sides of that equation by reducing the initial deposit required from eligible buyers and supporting developers.
A 2.5% deposit would be one quarter of the commonly assumed 10% deposit. This could allow some buyers to purchase sooner, although affordability will still depend on mortgage availability, household income and the applicable property price cap.
Buyers would also need to understand the terms of the government-backed equity loan, including when interest becomes payable and how repayment would work.
Restricting the scheme to new-build homes could increase demand for qualifying properties and support confidence in future development.
However, the benefit to developers will depend on the cost of participation, the eligibility requirements and whether the scheme creates additional demand rather than simply changing how existing purchasers fund their acquisitions.
If the scheme increases demand for new-build homes, it could encourage further development. Much will depend, however, on the number of buyers who qualify and the willingness of developers and mortgage lenders to participate.
There are also broader questions about whether support for purchasers alone will be enough to address housing affordability and supply.
The budget is expected to provide further detail. The principal points requiring clarification include:
Household income limits.
Local property price caps.
The length of the equity loan interest-free period.
Repayment terms for the equity loan.
Developer contributions and participation requirements.
The implementation timetable.
Until those details are available, it’s difficult to assess the full commercial impact of the scheme. The budget should provide a clearer indication of whether ‘Your First Home’ will make a material difference to first-time buyers and the residential development market.
Developers considering participation will need to understand the eligibility criteria, financial contribution and sales requirements once the detailed rules are published. Our residential development team can advise on the implications for site acquisition, development and plot sales.
For more information, please contact our real estate team.
