Local councils to help first-time buyers

Fifteen local authorities have signed up to a new scheme, launched on Wednesday, that will help first-time buyers with only a five per cent deposit get onto the property ladder.

Five local authorities including Blackpool, Warrington, Northumberland, Newcastle Under Lyme and East Lothian will be piloting the initiative, called Local Lend a Hand, which will see councils topping up the deposits of first-time buyers.

Ten additional councils are likely to offer the scheme within the next month.

Lloyds TSB has adapted its current Lend a Hand product, which sees parents place up to 20 per cent of the property’s value into a saving account at the bank as security for the loan, to the local authority market. Instead of parents, the local council will provide the cash security.

Each local council will agree with Lloyds TSB where in their area the scheme will be available. This could be certain postcodes or the entire local authority area.

While mortgage rates for the scheme have not been finalised, a spokeswoman for Lloyds TSB said they will be similar to its current Lend a Hand product. Existing rates include either a three-year fixed-rate at 5.09 per cent, with a £895 fee, or a rate of 5.79 per cent with no fee.

This means borrowers using the scheme can access slightly cheaper rates than through a traditional mortgage. Lloyds TSB currently has a three-year fix at 5.99 per cent at 90 per cent loan-to-value, with a fee of £895.

Lloyds TSB will allow loans between £25,000 and £350,000 but participating local authorities will decide the maximum loan size for their area. This will largely depend on how much money they want to put up as part of the initiative and the price of the average first-time buyer property in their local authority.

First-time buyers interested in the scheme should visit a Lloyds TSB branch to discuss whether the option is available to them. Borrowers will be assessed by the bank under normal affordability criteria.

Under the Local Lend a Hand product, first-time buyers will put down at least 5 per cent of the property’s value, and get a mortgage for the remaining amount. The local authority will provide a cash-backed indemnity of up to 20 per cent of the property value as additional security. The council will earn interest of around 4 per cent on the cash held on deposit.

But unlike shared ownership schemes, the first-time buyer will own the whole property.

Mortgage brokers said the Local Lend a Hand product will help those buyers who do not have wealthy parents to help them with the large deposits now needed to get a mortgage.

However, some analysts have criticised the scheme. Henry Pryor, a housing commentator, said it is not the job of the local authority to spend council tax money propping up an “over-heated housing market”.

He added: “If prices have to fall back so that first time buyers can afford to buy then that is what is what should happen.”

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