England housing scheme faces limits for three-bed first-time buyers

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England First Home scheme limits

Highlights

Zoopla estimates 70 per cent of new-build three-bed homes in the south-east exceed Your First Home scheme price caps, limiting first-time buyer eligibility.
Since Help to Buy ended, only 37 per cent of new-build homes by corporate housebuilders in England are expected to fall below the new cap, while over half qualify in London.
Repricing homes to meet scheme caps could cost builders an average of £9,300–£26,400 per home, adding to pressure amid construction costs and mortgage approvals down nearly 20 per cent year-on-year.

Price cap rules narrow access

As reported by Financial Times, citing Zoopla, most first-time buyers in Britain are looking beyond small starter properties, with 51 per cent seeking a three-bed house, compared with 18 per cent for a two-bed house and 13 per cent for a two-bed flat.

But its modelling suggests the structure of the new scheme will not align with that demand in many higher-priced markets. Zoopla estimates that 70 per cent of new-build three-bed homes in the south-east would sit above the likely local authority price caps that determine eligibility for the Your First Home scheme.

Your First Home will allow eligible buyers in England to purchase new-build homes with a 2.5 per cent deposit and a government equity loan covering 20 per cent of the property’s value. Applications are due to open in February, with the scheme launching in April.

Richard Donnell, executive director at Zoopla, said the caps mean the scheme does not work well for larger family homes, despite growing demand from buyers who want a property they can remain in for longer as transaction costs and mortgage rates stay elevated. He added that setting official caps will be complex in some areas because data on new-build first-time buyer prices over the past five years is limited.

Pressure builds on housebuilders and market activity

Since Help to Buy ended in 2023, builders have shifted their housing mix towards larger family homes, which are less likely to qualify under the new programme. Across England, Zoopla estimates that 37 per cent of new-build homes by corporate housebuilders will fall below the expected caps, while in London, where official caps have already been disclosed, more than half of new homes are expected to qualify.

Developers could reduce prices to bring more homes within the scheme, but the costs may be significant. Zoopla says the average cost of repricing a home that is up to 5 per cent above a cap is about £9,300, rising to £26,400 for homes priced 5 to 10 per cent above; builders must also pay a fee to use the scheme, starting at 1 per cent on the first 100 homes and rising to 4 per cent above 250 homes.

Neal Hudson, director of research group Residential Analysts, said the long lead time to get the scheme running could add to pressure on housebuilders at a time of rising construction costs and high mortgage rates. He said buyers may postpone purchases rather than rush, adding to uncertainty in a housing market where prices are stagnating, mortgage purchase approvals are down nearly a fifth in the year to September, and transactions are 4 per cent lower than a year earlier, according to official figures released on Friday.

Jeremy Leaf, an estate agent and former residential chair of Rics, said uncertainty ahead of the Budget and high mortgage rates have weakened confidence. He warned that delaying the scheme until next spring risks pushing transactions lower still as first-time buyers continue to wait.

Our earlier report on Chancellor John Healey’s deficit-reduction stance ahead of the October 28 Budget outlined his commitment to sticking with IMF-backed plans while trying to support growth. We also noted that August GDP rose 0.1%—beating expectations but signalling only modest resilience—amid mounting political pressure over tax and structural reform choices.

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