House builders England UK housing property
Starter homes would be sold at a 20% discount to first-time buyers Getty

The government was defiant over its flagship "starter homes" policy in the controversial Housing and Planning Bill after it suffered two defeats in the House of Lords. The Housing Bill is undergoing its third reading in the Lords, the final stage before becoming law.

But a coalition of Labour, Liberal Democrat and crossbench peers backed two amendments watering down the government's starter homes plan, which will see first-time buyers under-40 offered properties discounted by 20% in a bid to increase home ownership.

One amendment would force buyers of starter homes to repay the discount if they sold up within 20 years, though this amount would be reduced each year of occupation by one-twentieth. It was backed by a majority of 94 peers.

"The government believes it is wrong that a 30-year-old couple's aspirations should be thwarted by having to wait until they are 50 to benefit from the full value of their starter home," said Brandon Lewis, the Conservative housing minister. "We will listen carefully to the points made in the debate but our manifesto commitment to introduce starter homes at a 20% discount for first-time buyers is unwavering."

Another amendment gives local councils control over how many starter homes are allowed to be built in their areas, and was backed by a majority of 86 peers. Councils had expressed concerns that starter homes will be allowed to count as "affordable" under section 106 agreements with developers, who are obliged to build low-cost housing or make payments to the community in order to secure planning permission.

Councils argued starter homes will cannibalise the construction of other, more affordable housing, such as for social rent. The Local Government Association, which represents councils, is hostile to starter homes.

The government now faces a battle to overcome the amendments by making new changes to its bill and winning over peers. If the bill fails to get through the Lords in the final vote, it will go back to the House of Commons and begin its journey again, delaying its progress on to the statute books.

It is a wide-ranging bill that seeks to radically change housing policy in England and Wales. Among its most contentious elements are the abolition of lifetime tenancies for those in council housing; "right to rent", which makes landlords check the immigration status of tenants; and "pay to stay", which increases the number of people paying market rents in social housing; and extending the right to buy to housing association tenants.