Born in Bishop Auckland, County Durham, Holmes graduated through The Football Association's School of Excellence. He started his career with Premier League club Sheffield Wednesday as a trainee in their youth system before signing a professional contract on 2 December 1997, and was promoted to the first team for the 1999–2000 season. After failing to appear for the team, Holmes was signed by Luton Town on 1 August 2000 on a three-year contract for a nominal fee. Luton manager Ricky Hill had been impressed by the player while working as a coach at Wednesday. Holmes made his debut for Luton after being introduced as a 58th-minute substitute in a 1–0 defeat at home to Notts County in the Second Division on 12 August 2000. He scored his first goal for Luton with their second goal in a 3–2 home victory over Peterborough United on 26 December 2000, and played his final match of 2000–01 at Oldham Athletic on 23 January 2001, where he was substituted for Liam George in the 55th minute. He was transfer listed in April 2001 by manager Joe Kinnear and completed his first season at the club with 22 appearances and one goal, after which Luton were relegated to the Third Division.