November 23, 2012 6:53 pm

Councils top up first-time buyer deposits

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More than 1,000 first-time buyers have been helped on to the property ladder in the past 16 months under a scheme that uses council cash to top up the deposits of residents struggling to purchase their first home.

Hertfordshire county council this week became the 31st local authority to sign up to the Local Lend a Hand scheme, in which councils provide cash as security to enable buyers with a 5 per cent deposit to secure a mortgage from Lloyds TSB.

The scheme is one of many launched in the past two years that aim to revive a weak housing and mortgage market. Since it began in July last year, the Local Lend a Hand scheme has provided £100m of funding to first-time buyers.

However, the scheme is small compared with the overall first-time buyer market. A total of 264,000 mortgages were approved to first-time buyers over the same period.

Government initiatives, such as the NewBuy and FirstBuy schemes, have fared slightly better but have also been slow to take off.

The NewBuy scheme – under which the government guarantees 95 per cent mortgages on new-build homes – sold just 250 homes in its first four months, despite the aim to help up to 100,000 people move by 2015.

According to the Home Builders Federation, 2,200 people have reserved homes through NewBuy since its launch in March.

FirstBuy, a shared equity scheme launched by the government last summer, has resulted in more than 8,500 sales, according to the Department for Communities and Local Government.

“The numbers are not massive but these are purchases that probably would not have happened without these schemes,” said Ray Boulger, a mortgage broker at John Charcol.

The Local Lend a Hand initiative has been criticised for using taxpayers’ money to prop up the housing market and encouraging people to take out 95 per cent mortgages.

Under the scheme, first-time buyers put down at least 5 per cent of the property’s value and get a 95 per cent mortgage from Lloyds TSB. The council provides a cash-backed indemnity of up to 20 per cent of the property value in a savings account with the bank, which earns the council interest.

Participating councils decide where in their areas the scheme will be available and the maximum loan size. Most opt for a maximum loan of £150,000.

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