Councils to give struggling first-time buyers 20% deposits on homes

Published 16th Mar 2011

Local authorities will be able to help first-time buyers struggling to get on the property ladder under a scheme which was launched today.

The initiative is aimed at people who could afford monthly repayments on a 95 per cent mortgage but do not have the big deposit that most lenders are currently demanding.

Under the scheme, local councils would step in and provide a security worth up to 20 per cent of the property's value, which would be held with the lender and on which interest would be paid, enabling the buyer to qualify for a lower mortgage rate.

The individual would still borrow up to 95 per cent of their property's value, while they would also own their home outright, unlike under a shared ownership scheme.

The initiative is being piloted by five local authorities in Blackpool, Warrington, Northumberland, Newcastle under Lyme and East Lothian, but there are plans to roll it out to other areas of the UK later this year.

It has been developed by Sector Treasury Services, which is part of the Capita Group, and Lloyds TSB is the first lender to sign up to the scheme.

The part-nationalised bank has adapted its existing Lend A Hand mortgage, under which parents lodge money with the bank equal to up to 20 per cent of a property's value, to create Local Lend a Hand, where the money is instead put up by the local authority.

The group has not yet set interest rates for the scheme, but it said they were likely to be similar to those offered through its Lend A Hand scheme, under which someone with just a 5 per cent deposit can get a three-year fixed rate mortgage of 5.09 per cent with a £895 fee.

That is compared with a rate of 5.99 per cent from its mainstream range if they had a 10 per cent deposit.
Estate agents boards on a street in Warwick, Warwickshire.

Individual local authorities will be able to decide how much they will make available for the scheme in total, as well as setting a cap on the amount that it will assist individuals with.

Cecilie Booth, director at Sector Treasury Services, said: 'The combination of relatively high house prices and understandable caution over lending from banks and building societies means that many potential first-time buyers are unable to save a sufficient deposit, even though they could afford mortgage repayments on a typical first home.'

Stephen Noakes, commercial director of mortgages at Lloyds TSB, said: 'We know that a lot of young people turn to the ''bank of Mum and Dad'' to get their foot on the ladder, but that's not a solution for everyone.

'By developing Local Lend a Hand and working with local authorities across the UK, we're broadening the prospect of home ownership to even more first-time buyers.'

Housing Minister Grant Shapps recently called on lenders to do more to help struggling first-time buyers, including introducing new products.

Source: ' ThisIsMoney '

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