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Conveyancing

A First Time Buyer’s Guide to the Discount Market Sale Scheme

24
Feb

Introduction

The discount market sale scheme helps first time buyers buy a home at a price below full market value. The scheme sits between open market purchase and other affordable options such as shared ownership. This guide explains how the scheme works under the law in England and Wales, what first time buyers should check, how resale rules affect future plans, how mortgages work for these homes, and practical steps to complete a safe purchase. It uses plain language and focuses on what a first time buyer needs to know.

What is a discount market sale scheme?

A discount market sale scheme sells homes at a fixed discount from open market value. The discount might be 10% to 50% depending on local policy and developer agreements. The buyer gets a normal legal title, usually freehold for houses and leasehold for flats. The sale carries legal restrictions that preserve affordability when the property is sold again.
Local planning authorities use the scheme to meet affordable housing requirements on new developments. Housing associations or developers can deliver the homes. The discounts remain attached to the property so future buyers also benefit from reduced price or are subject to resale rules that control uplift.

Why first time buyers should consider the scheme

High house prices put home ownership out of reach for many first time buyers. Discount market sale homes lower the upfront cost and may allow buyers to get a mortgage sooner. The scheme suits buyers who plan to live in the property long term and who accept limits on future capital growth or resale options.
The scheme also helps first time buyers with:
– Lower deposit needs because the purchase price is reduced
– Lower stamp duty or land transaction tax in some cases because the tax is based on the paid price
– Clear eligibility rules that favour local households and those in housing need
However buyers should weigh reduced equity potential, resale complexity and possible mortgage limits before committing.

How discount levels are set

Local authorities include discount levels in local plans or secure them through section 106 planning obligations. More information on S106 agreements can be found in our blog here. Authorities pick a discount based on local earnings, house prices, viability of the development and policy priorities. Some place a fixed percentage discount on each unit. Others set a formula that ties price to local median incomes or to affordability measures.
First time buyers should check whether the discount is a fixed percentage or a variable formula. Fixed discounts give certainty at the point of purchase. Income linked models better target local need but may vary when the buyer comes to sell.

Legal framework and planning agreements

The main legal tools that secure discount market sale homes include:
– Section 106 agreements: Planning obligations attached to planning permissions. They specify numbers of discounted units, discount levels, eligibility rules and resale controls.
– Restrictive covenants: Rights registered on the title that limit sale price, control buyers and set nomination rights.
– Nomination agreements: Arrangements giving the local authority or housing association the right to nominate buyers either on first sale or on resale.
Section 106 agreements and covenants form part of the registered title. Your lawyer must read these documents carefully because they affect mortgageability and future sale options.

Eligibility rules for first time buyers

Eligibility rules vary by scheme but commonly include:
– First time buyer status
– Local connection to the borough county or neighbourhood
– Household income below a set threshold
– Requirement to use the property as main residence
– No ownership of other property at the time of purchase
Local authorities may maintain waiting lists and priority bands for applicants such as key workers or households with local ties. Housing associations often administer applications and verify eligibility before exchange of contracts.

The sales process for first time buyers

Marketing and application
Developers or housing associations advertise available units through local authority lists or their own websites. Applicants usually register interest and submit documents proving eligibility.

Reservation and conveyancing
Once accepted, the buyer pays a reservation fee and instructs a conveyancer. Solicitors should check the S106 agreement, title restrictions and any nomination rights. The conveyancer must explain resale rules clearly so the buyer understands future obligations.

Valuation and mortgage offer
Lenders need a valuation and a formal mortgage offer. Buyers should seek mortgage advice early because not all lenders accept properties subject to resale restrictions. A mortgage in principle helps confirm affordability.

Completion
Completion follows the standard conveyancing timetable, subject to any specific conditions in the S106 agreement. On completion the buyer receives the title with the registered covenants in place.

Resale rules and how they affect first time buyers

Resale restrictions protect affordability for future buyers but they affect proceeds and marketability. Common resale mechanisms include:
– Fixed discounted resale: The property must be sold at the same percentage discount from current open market value.
– Formula sale price: The resale price follows a formula set in the S106 agreement such as base price plus a capped uplift.
– Nomination or first refusal: The local authority or housing association can nominate a buyer or buy the property first.
– Shared appreciation: A portion of any increase in value returns to the council or developer on sale.
How market value is determined matters. Most agreements require an independent RICS valuer to assess open market value at the time of sale. The resale clause should set a clear valuation method and a timescale for the valuer to act. Unclear wording causes delay and extra costs when selling.

Impact on capital growth and equity

Discount market sale homes frequently restrict capital gains. Some restrictions cap allowable uplift. Others require the seller to share extra value with the council. First time buyers should consider whether they need unrestricted equity to fund future moves or life events. If full capital growth matters, the scheme may be less suitable.

Mortgageability of discounted homes

Lenders assess the security value and the ability to repossess and sell. Restrictions on resale reduce the open market value lenders can rely on. As a result some lenders:
– Apply lower loan to value ratios
– Offer specialist products only
– Require a larger deposit
Buyers should seek lenders familiar with discounted sale products. Councils and developers can help by drafting covenants in mortgage friendly language and by providing clear valuation procedures that lenders can accept.

Costs for first time buyers

Upfront costs include:
– Deposit based on discounted price
– Reservation fee
– Valuation fee
– Legal fees for specialist conveyancing
– Stamp duty land tax may be payable on the purchase price
Ongoing costs may include ground rent and service charges for leasehold flats. Buyers must budget for possible additional costs on resale such as valuation fees or administration fees payable to the local authority or housing association.

Tax and benefits considerations

Stamp duty land tax is calculated on the price paid which benefits buyers. Capital gains tax rarely affects owner occupiers on sale of a main home. However shared appreciation clauses and clawback terms can create complex tax implications. First time buyers should consider seeking tax advice if resale formulas contain unusual value sharing provisions.

Common pitfalls and how to avoid them

Pitfall: Missing or unclear resale wording
How to avoid: Ask the conveyancer to check S106 clauses and title covenants before reservation. Seek clarification from the local authority or developer on valuation methods.
Pitfall: Limited mortgage options
How to avoid: Obtain mortgage advice early. Obtain a mortgage in principle from a lender that accepts discounted market sale restrictions.
Pitfall: Unexpected additional costs
How to avoid: Prepare a full budget, including valuation and administration fees. Ask the seller to provide a breakdown of likely fees on resale.
Pitfall: Future sale delay
How to avoid: Understand the nomination and resale process, and whether the local authority has set timescales for nominations and valuations.

Practical checks for first time buyers

Before signing, the buyer should:
– Confirm eligibility criteria and any priority nomination rules
– Obtain a mortgage in principle and ask lenders about any product exclusions
– Read and understand the S106 agreement, title covenants and resale formula
– Ask whether the local authority will enforce nomination rights and how it handles disputes
– Check how market value will be calculated on resale and how quickly a valuer must act
– Check lease terms where applicable including length, ground rent and repair obligations
How to get help and advice
First time buyers should use experienced professionals like us who understand discounted market sale schemes:
– Independent mortgage broker with knowledge of discounted sale lending
– Solicitor like us experienced in affordable housing covenants and S106 agreements along with the DMS scheme
– Local authority housing officer or housing association officer for scheme details
– Independent financial adviser for long term planning and tax questions
Local authorities often publish scheme guidance and FAQs which supply practical details about eligibility and process. Housing associations that manage DMS units may publish waiting lists and application forms.

Alternatives to discount market sale for first time buyers

First time buyers should compare DMS with other options:
– Shared ownership where the buyer purchases a share and pays rent on the remainder
– Starter homes or other local affordable ownership schemes where offered
– Saving for a larger deposit and entering the open market
Each option carries different implications for equity, costs and suitability. Buyers should make a choice based on financial position long term plans and local availability.
How local authorities and developers can support first time buyers
Local authorities and developers can make DMS more attractive by:
– Setting clear, consistent eligibility rules and publishing guidance
– Drafting S106 and covenants in lender friendly terms
– Working with lenders early to secure mortgage pathways
– Minimising administrative fees and streamlining valuation and nomination processes
– Monitoring outcomes and adjusting policy where schemes fail to reach target buyers
A practical, transparent approach helps buyers, speeds transactions and supports community objectives.

Case study summary (illustrative)

A first time buyer in a coastal town secured a two bedroom flat at a 30% discount. The local authority held a nomination list and required local connection. The buyer obtained a mortgage from a lender who accepted the title covenant because the resale valuation method used a RICS valuer and the S106 allowed lenders to exercise security on default. The buyer accepted that on resale the property would be sold at a 30% discount from the then open market value as determined by the valuer. The clear wording in the S106 and early mortgage advice enabled a smooth purchase and made the property affordable in the short term.

Conclusion

Discount market sale schemes offer a useful route into home ownership for first time buyers in England and Wales. The lower purchase price can make ownership possible sooner than open market alternatives. Buyers should weigh benefits against limits on future equity and potential mortgage complications. Careful checks of S106 agreements, clear mortgage advice and specialist conveyancing reduce risk and speed completion. When designed and managed well the scheme benefits buyers, local councils and developers by delivering affordable homes that remain available to future local residents.

Brief summary

– Discount market sale sells homes at a fixed discount from market value, secured by S106 and title covenants.
– The scheme helps first time buyers with lower upfront costs but may limit future equity.
– Eligibility often includes first time buyer status, local connection and income limits.
– Buyers must check resale rules, valuation methods and lender acceptance before committing.
– Obtain early mortgage advice, specialist conveyancing and consider tax implications.
– Local authorities should draft lender friendly covenants and publish clear guidance to make the scheme effective.

As with any investment decision, when buying a property it’s vital that you do your homework carefully. As well as fully researching the location and market that you are looking to buy in, it’s vital that you seek advice of experts, including surveyors and financial advisors. Alexander JLO, its Partners and employees cannot provide specific advice on choice of location or the market but can advise on all matters legal once you have made a decision to buy a property.

If you are looking for a first rate conveyancing service why not give one of Alexander JLO’s specialist property lawyers a call on 020 7537 7000, click on the get a quote button or email quote@london-law.co.uk for a free, no-obligation quotation? Come and see what we can do for you.

This blog was prepared by Alexander JLO’s property partner Matt Johnson on 24th February 2026 and is correct at the date of publication. Matt has many years of experience of dealing with property work and specialises in new build and shared ownership properties.  His profile on the independent Review Solicitor website and be found here