TL;DR: Contractors are generally eligible for the First Homes scheme provided they meet the standard first-time buyer and income criteria. While the scheme offers significant discounts, contractors must ensure they can secure a mortgage from a lender that understands complex income structures. Your property may be at risk if repayments are not made.

Are contractors eligible for the First Homes scheme?

The First Homes scheme is a government initiative designed to help local first-time buyers and key workers in England get onto the property ladder. It provides a discount of at least 30% on the market value of new-build homes. For many professionals working on a contract basis, the primary question is whether their employment status affects their eligibility for this significant discount. The short answer is yes, contractors are eligible, but the application process requires careful preparation regarding financial documentation.

Understanding the First Homes scheme basics

Before diving into contractor-specific requirements, it is essential to understand how the scheme functions. The discount stays with the property forever. This means that when you eventually sell the home, you must sell it to another eligible first-time buyer at the same percentage discount you received. This ensures the property remains affordable for the local community in the future.

To be eligible for the scheme, you typically need to meet several criteria set by the government and your local authority:

• You must be a first-time buyer.
• Your total household income must not exceed £80,000 (or £90,000 in Greater London).
• The property must be your only or main residence.
• You must have a mortgage or home purchase plan covering at least 50% of the discounted purchase price.

Local councils may also have additional “local connection” rules, such as requiring you to already live or work in the area, or being a key worker. You can find more specific details on the official government guidance for First Homes.

How contractor status impacts eligibility

Being a contractor does not disqualify you from the First Homes scheme. The government’s main concern regarding income is that your total household earnings stay below the maximum threshold (£80,000 or £90,000). For contractors, calculating this “total income” can sometimes be more complex than for a salaried employee.

If you operate as a sole trader or through a limited company, the local authority will look at your most recent taxable income. If you are a new contractor with a high day rate, you must ensure your projected annual income does not push you over the eligibility ceiling. Conversely, if your income fluctuates, you may need to provide several years of accounts to prove you meet the threshold fairly.

Securing a mortgage as a contractor

While you may meet the government’s eligibility rules, the bigger hurdle for many contractors is the mortgage. To use the First Homes scheme, you must secure a mortgage for at least half of the property’s value. Not all lenders are familiar with the scheme, and some may have stricter lending criteria for those who are self-employed or on short-term contracts.

Lenders generally view contractors in one of three ways:

• Day-rate contractors: Many specialist lenders will calculate your annual income by taking your daily rate, multiplying it by five days, and then multiplying that by 46 or 48 weeks. This can often result in a higher borrowing capacity than looking at salary and dividends alone.
• Limited company directors: Lenders may look at your salary plus your share of net profit or dividends over the last two to three years.
• CIS workers: For those in the Construction Industry Scheme, some lenders will use your gross pay as evidenced by your vouchers.

Lenders will also look closely at your credit history. To ensure you are in the best position to apply, you should review your credit report for any inaccuracies. Get your free credit search here. It’s free for 30 days and costs £14.99 per month thereafter if you don’t cancel it. You can cancel at anytime. (Ad)

The importance of contract longevity

Mortgage providers typically want to see stability. If you are a contractor, they may ask to see that you have been working in the same industry for at least two years and that you have a certain amount of time remaining on your current contract (often six months). If your current contract is nearing its end, having a written renewal or a history of consistent contract renewals can help your case.

If you have recently switched from a permanent role to contracting, some lenders may be hesitant, while others are more flexible if you are doing the same job for similar pay. Using a specialist mortgage broker who understands the contractor market is often the most effective way to navigate these requirements.

Financial risks and property considerations

Applying for the First Homes scheme involves significant financial commitments. It is important to remember that your property may be at risk if repayments are not made. Failing to keep up with mortgage payments could lead to legal action, repossession by the lender, increased interest rates on your debt, and additional administrative charges.

Furthermore, because the property is a new-build, you should consider the potential for “new-build premium” fluctuations. While the 30% to 50% discount provides a significant buffer, the resale price will always be tied to the market value at the time of sale, minus the original discount percentage. If property prices in your area fall, the value of your stake in the home may also decrease.

Key steps for contractors applying for First Homes

If you are a contractor interested in the scheme, follow these steps to improve your chances of a successful application:

• Check local availability: Not all new developments offer First Homes. Research local planning applications or contact developers in your preferred area.
• Verify local criteria: Check your local council’s website to see if they have specific “key worker” or “local residency” requirements that might affect your priority.
• Organise your accounts: Ensure you have at least two years of finalised accounts or a clear record of your contract history and day rates.
• Get an Agreement in Principle (AIP): Before viewing properties, speak to a lender or broker to get an AIP that specifically acknowledges the First Homes scheme.
• Apply through the developer: Once you find a suitable First Home, you apply through the developer, who then submits the application to the local council for approval.

People also asked

Can I buy a First Homes property if I have owned a home abroad?

No, the First Homes scheme is strictly for first-time buyers. If you have owned a property anywhere else in the world, you are typically not eligible for this scheme.

What is the maximum income for the First Homes scheme?

The standard maximum household income is £80,000 across England, though this limit rises to £90,000 for properties located in Greater London.

Do I need a large deposit as a contractor?

Not necessarily. While a larger deposit may help you access better mortgage rates, many lenders accept a 5% or 10% deposit based on the discounted purchase price.

Can I rent out my First Home?

Generally, no. The property must be your main residence. There are limited exceptions for short-term rentals or specific life changes, but these usually require council permission.

What happens if I want to sell my First Home?

You must sell the property to another buyer who meets the First Homes eligibility criteria, applying the same percentage discount to the new market value.

Summary for contractors

The First Homes scheme represents a viable pathway to homeownership for contractors who might otherwise struggle to afford a property in their local area. By offering a minimum 30% discount, it reduces the required mortgage size and the necessary deposit. However, the complexity of contractor income means you should be proactive in gathering financial evidence and seeking professional advice.

While the benefits are clear, always weigh them against the restrictions on resale and the responsibilities of maintaining mortgage repayments. Provided you meet the income caps and the first-time buyer definitions, your status as a contractor should not be a barrier to accessing this government-backed support.