Councils to help first-time buyers
Local authorities will be able to help first-time buyers struggling to save a deposit get on to the property ladder under a new scheme.
The initiative is aimed at people who could afford monthly repayments on a 95% 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% 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% 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% 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% deposit can get a three-year fixed rate mortgage of 5.09% with a £895 fee, compared with a rate of 5.99% from its mainstream range if they had a 10% deposit.
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.