Your First Home price caps could shut out family buyers

Tens of thousands of first-time buyers could be unable to use the government's new equity loan scheme unless ministers set its price caps far more locally than they did under Help to Buy, according to analysis by Savills. 

The research, first reported by The Times, found that the regional limits used in Help to Buy's final two years left buyers in pricier towns with nothing they were allowed to buy, while cheaper areas in the same region were well served. If those caps come back, families looking for a three-bedroom house rather than a flat would be hit hardest. 

Chancellor John Healey will publish the caps, along with an income limit, in the Budget on 28 October. 

What's on the table 

Andy Burnham announced Your First Home on 26 September, on the eve of his first Labour conference as leader. Buyers in England would need a 2.5% deposit on a new-build from a participating developer. The government would lend another 20%, interest-free for an initial period. 

Developers will pay a fee linked to property values to join, and pre-registration is due to open before the end of the year. On a £230,000 home, roughly the Rightmove average for a first-time buyer, that means a £5,750 deposit and a £46,000 government loan. 

The mortgage would sit at 77.5% loan-to-value, which gives buyers access to cheaper rates than a 95% deal. 

Help to Buy worked on similar lines, with a 5% deposit and a 20% loan, or 40% in London. Between April 2013 and May 2023 it funded 387,195 purchases, 328,346 of them by first-time buyers. Housing is devolved, so the new scheme covers England only. 

Read next: Burnham's Your First Home scheme wins cautious industry backing 

One cap, very different markets 

For its first eight years Help to Buy had a single £600,000 ceiling across England. From 2021 that was replaced by regional caps worth 1.5 times each region's average first-time buyer price, from £186,100 in the North East to £600,000 in London. 

Savills says averages across a whole region hid huge local gaps. Its figures for a three-bedroom new-build of about 900 sq ft: 

Source: Savills, via The Times. Caps: Propertymark 

Under the same £407,400 limit, a family in Ipswich had room to spare while one in Epping Forest was more than £240,000 short. In Bournemouth the typical three-bed overshot the South West cap by £116,000. 

Small changes to the cap make a big difference, Savills found. A notional £300,000 limit across England would bring a three-bed new-build within reach in only 10% of local authorities. At £350,000, that rises to 58%. 

In 55 local authorities a cap above Help to Buy's old £600,000 maximum would be needed for any three-bed home to qualify. In Hammersmith and Fulham the average is about £1.4m. Even in Brent, one of the cheaper boroughs, it is £770,950. 

Savills also argues that buyers have changed since 2013. More first-timers now live with parents for longer and go straight for a family house instead of a starter flat. The firm made a similar case in a blog earlier this year, calling for value caps that reflect local markets to avoid distorting prices. 

Read next: Solo buyers could access twice as many new-builds under Your First Home 

London's bigger gap 

London has a separate problem. Help to Buy let buyers in the capital borrow up to 40% from the state. Your First Home, as announced, offers 20% wherever you live. 

Paula Higgins, chief executive of the HomeOwners' Alliance, has set out what that means. The average London first-time buyer paid £467,000 in July, according to the Land Registry's house price index. A 2.5% deposit on that is about £11,700, leaving a mortgage of about £362,000 even after the 20% loan. At 4.5 times income, the household would need to earn around £80,000. 

"The government should consider whether London needs a higher equity loan," Higgins said, though she accepted that a bigger loan could push prices up. 

The income cap could tighten things further. Its level has not been announced. But if it matched the £90,000 London limit that applies to First Homes, a household buying an average-priced London home would need to earn at least £80,000 and no more than £90,000. 

How the old equity loan was repaid 

Your First Home's repayment terms have not been published beyond an initial interest-free period. Under the 2021–23 Help to Buy equity loan, buyers paid no interest for five years. In year six they were charged 1.75% of the amount borrowed, rising each April by CPI plus 2%. 

The loan was repaid as a share of the home's value at the time, not as a fixed sum. A buyer who borrowed 20% repaid 20% of the market value on sale or redemption, so any rise in value increased the debt. Part repayments had to be at least 10% of the home's value. 

What the industry wants from the Budget 

Caps were already on the industry's radar. When the scheme was announced, Stephanie Charman, chief executive of the Association of Mortgage Intermediaries, said: "The success of the scheme will depend on getting the detail right." She asked how the price caps would sit alongside the £300,000 first-time buyer stamp duty threshold, and whether enough new-builds would be available where buyers need them. 

Kate Davies, executive director of the Intermediary Mortgage Lenders Association, welcomed the scheme but warned that limiting it to new-builds narrows buyers' choice and risks concentrating the benefit among developers. SAM Conveyancing has gone further, calling on ministers to extend Your First Home to existing homes. Charlie Lamdin has argued that a 2.5% deposit leaves buyers more exposed to negative equity than Help to Buy did. 

Read next: Extend Your First Home scheme to existing homes, say property experts 

Where buyers live will matter as much as what they earn. Rightmove estimates the share of new-builds affordable to an average solo buyer would rise from about 10% to 22% under the scheme, with the North West offering the widest choice at 31%. The scheme also arrives as house prices flatline and mortgage rates rise. 

Until 28 October, any affordability figures brokers run for clients under the scheme are provisional. The level of the caps, the income limit and the size of the London loan are all still to be decided. 

Read next: Burnham's Your First Home: the wrong answer to the right question?