16 March 2011
Councils are to participate in a pilot scheme to help first-time buyers get on the housing ladder.
Under the scheme, councils will invest money with a mortgage
lender. This will be used to ‘top up’ the deposits of local people who are able
to meet mortgage repayments but are struggling to raise enough money for a
deposit.
The council investment will allow mortgage lenders to increase the ‘loan-to-value’ of a mortgage from 75% to 95%. Normal lending criteria will continue to apply to ensure borrowers can afford the repayments.
Lloyds TSB today announced that it was the first high-street bank to join the scheme as a mortgage provider, although it hopes others will follow suit.
Five councils have so far revealed their involvement. These are: Blackpool City Council, Northumberland County Council, Newcastle-under-Lyme Borough Council, East Lothian Council and Warrington Borough Council.
Paul Campbell, executive member for finance at Warrington, told Public Finance that the council was planning to invest £5m with Lloyds TSB over the next five years. This should help 250 local people become first-time buyers and generate a ‘very good’ return for the council of up to 4.25% over the five-year period.
Campbell said the scheme would not only help first-time buyers, but also stimulate the local housing economy, freeing up rented accommodation and helping those trying to sell their properties to move on.
He dismissed the suggestion that helping people become property owners should not be a priority for a council.
‘We think it’s a worthwhile thing. It also stimulates the local job market and helps business – all things the council should be doing. The return on the investment can also be re-invested in the services that the residents of Warrington use,’ he said.
Campbell added that the financial risk to the council was minimal at 0.3%, equivalent to £15,000 for Warrington. ‘It’s low risk to us, with a great benefit.’
The scheme has been developed with Sector Treasury Services, part of the Capita Group.
