Crucial issues surrounding the length of the discount period, and how properties will be valued have still to be decided
Last year saw a lot of talk about starter homes and you may have engaged with first-time buyers asking about this latest government housing initiative. But starter homes have been, well, a long time starting. They are in danger of becoming a parody of a horse race, with the starter calling more than once for a false start, as the government horses get themselves embroiled around the starting tape.
We still have to wait until 18 May before the technical consultation closes for developers, lenders and local planning authorities. So what began as an announcement from the Prime Minister towards the end of 2014 is unlikely to see the first digger on site before 2017 and the first sales perhaps towards the summer of the same year.
The idea behind the initiative is to build affordable homes exclusively for sale to first-time buyers, making better use of exception/brownfield sites to encourage developers to build more cheaply without contributions to the infrastructure levy and other non-build costs.
The homes would be available at a 20 per cent discount to market value to first-time buyers, who must be aged under 40.
Over the past 20 years, the proportion of under-40s that are homeowners in England has declined by over a third, from 61 per cent to 38 per cent in 2014/15, according to the English Housing Survey. To encourage greater home ownership, the Government has stated its intention to build 200,000 starter homes by 2020. To lose the first two years until 2017 is a setback for all those that have already registered their interest.
It is likely the consultation will throw up more issues as it has done with the Housing and Planning Bill currently before Parliament, of which starter homes are a key feature. Originally, the starter homes purchaser would only benefit from the 20 per cent discounted price if they did not sell on the property for the first five years of ownership, after which they could sell at full market value.
The Government is now consulting on whether that period should extend to eight years. However, the House of Lords has already won an amendment to extend the discount period to 20 years, tapering the discount by 5 per cent each year if sold in that period. This amendment, if upheld by the Commons, means future first-time buyers will benefit from starter homes, not just the original owners.
As mortgage advisers we know only too well the issues lenders and valuers have in valuing something different and that carries a restriction on its selling price. And though developers may appear eager to be involved with starter homes, what if these designated sites are near conventional residential sites using the Help to Buy scheme? Will they cannibalise existing sales as first-time buyers look for the best deal?
The price caps of starter homes of £250,000 outside Greater London and £450,000 within mean many buyers will be looking at all options, particularly as the average purchase price for buyers using a Help to Buy Equity Loan mortgage is £221,000.
So there are still plenty of fences to clear before advisers can mobilise first-time buyers into starter homes as their first step onto the housing ladder.