Councils are to help first-time buyers get on the housing ladder by topping up their deposits.

Five councils are pioneering a scheme aimed at buyers who can afford the monthly mortgage repayments but do not have a lump sum saved up.

Many first-time buyers find it difficult to purchase a home because lenders are asking for hefty deposits.

The councils will put 20% of the price in a Lloyds TSB account, with the lender asking for a 5% deposit.

The funds will not go to the buyer and the mortgage rate will be lower.

The councils risk losing money if a buyer defaults, but they get a generous interest rate themselves.

The scheme could benefit up to 300 first-time buyers in each area, but if other councils join, thousands could potentially benefit.

Another 10 councils are waiting to join the scheme.

Sustainable market

The scheme is called Local Lend a Hand.

"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 is not a solution for everyone," said Stephen Noakes, of Lloyds TSB.

"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.

"Helping people to buy their first home is crucial in achieving and maintaining a sustainable housing market," he added.

The councils involved so far are Warrington, Northumberland, East Lothian, Blackpool and Newcastle-under-Lyme.

The scheme was welcomed by Housing Minister Grant Shapps, who encouraged the industry to offer greater help for first-time buyers at a recent summit.

"I am delighted to see that those on the front line of building homes and providing mortgages are stepping up their efforts to help aspiring first-time buyers get a foot on the ladder," he said.

But estate agent and property market commentator Henry Pryor said that councils should not be risking money during a time when their budgets were being squeezed.

"It is not the job of the local authority to spend council tax money propping up an over-heated housing market. If prices have to fall back so that first-time buyers can afford to buy then that is what is what should happen," he said.

Figures from the Financial Services Authority (FSA), published earlier this week, showed that only just over 2% of new mortgage lending in the final three months of 2010 was to those who could offer a deposit of less than 10% of a home's value.

Complaints
The project was launched as the number of complaints against estate agents was described as "unacceptably" high by the Property Ombudsman, despite inactivity in the housing market.

Christopher Hamer said he had dealt with 1,338 new cases last year. This was a record number during the scheme's 20-year existence.

Among the cases, which reach the ombudsman if a customer and agent are unable to come to agreement following a complaint, were 646 cases about sales and 672 cases about lettings.

Mr Hamer repeated his view that the government should step in to introduce better protection for tenants and landlords against rogue letting agents.

Unlike estate agents, letting agents do not have to belong to an ombudsman scheme, although many sign up voluntarily.

His views were backed by the Association of Residential Letting Agents (Arla).

"The increase in the number of complaints recorded by the Property Ombudsman is unsurprising, given that the ombudsman covered more tenancies during 2010," said operations manager Ian Potter.

"However, as the ombudsman says, the regulation of letting agents is well overdue. The absence of regulation means the consumer is left vulnerable, with nowhere to go when there is service failure or fraud."

http://www.bbc.co.uk/news/business-12754818

Hmm...

Perhaps companies should do this to encourage employees to live closer to where they work.

Perhaps they should pay their staff a wage that enables them to do this without assistance?


That is the right solution. Governments need to regulate the entire mortgage market to stop property bubbles getting out of control.

Can I ask why? Why do the councils take the risk? Why don't people rent?

In this case, I assume, councils are doing it because they think it will get people off the council house register/waiting list. Although why you'd be on that list if you can afford the monthly payment for a mortgage... as you say, if you can afford the mortgage payments, you can afford to rent.

Jon

Yes but the same could be said of the long term disabled. If they were seriously disabled then they would not have to worry about moving for work or even moving again. A cheaper long term option is to help them to buy. It could reduce future housing benefit claims as their mortgage repayments could be fixed and would not climb as consequence of a housing bubble. So 25 years of a mortgage would work out cheaper then 50 years plus of private tenancy rents. The problem is that governments do not think beyond the next election, so it is someone else's problem.

Perhaps businesses should be encouraged to move out of the South East to cheaper parts of the country and cool the overheat in and around London.


I entirely agree.

What is the point of councils injecting demand into the market and making the problem worse?

As was pointed out if the market collapses how will the councils make up the losses?

Indeed. However my point was that the council funding will merely serve to drive up prices.

If the first rung of a ladder is eight feet up, the sensible answer surely isn't to give people a leg up but rather to cut six feet off the bottom and try again.

It is wrong on so many levels. It further prices out many first time buyers and penalises those who rent because it drives up rents and penalises the young. It will drive up housing benefits as well which is already problematic.

I do not see why first time buyers should be helped. A deposit and a mortgage that you can afford is the way it used to work.

As for rental, contract sets of landlords into the council with maximum rates. Many would jump at the chance if councils guarantee rental on a yearly basis.

Yes but when a deposit needs to be 25% of the mortgage, it can be a bit ridiculous. On one hand the council helping out would be awesome for me. On the other hand, things would eventually improve any way.

At the moment, I want to move closer to work. The houses are a little more expensive. Renting means I'd be paying the same (or more) than paying a mortgage. It's just the deposit that's the kicker. Only £12k saved at the mo and I can't look to parents helping me out either.

LTV used to be based on the ability of the person to pay. Generally in the early 00's it was a maximum of 90/95% LTV, if you were more of a risk it would be less. That's only sensible.

I do agree the banks need a severe kick up the backside for several reasons though.

Well much tougher now that the government have clamped down on housing benefit. Many landlords have bought places with the intention of using them as a pension. So to leverage their pension pot they have high loan to values and so need x amount just to cover the mortgage. WIth lower rents now being paid they only can let to private tenants but with a surfeit of properties available they will be able to pick and choose landlords. The end result is that rents have maxed out and buy to let will shortly become a nightmare for many landlords because those properties above the 30th percentile will not be held up by those with housing benefit. With incomes being squeezed the impact on landlords will soon be felt. If the rents do not cover the mortgage many buy to let landlords could soon face financial difficulties. Some will be forced sellers which means prices could suddenly collapse which while good for potential first time buyers it will mean bigger losses for the banks and lead to a mortgage shortage. So even those with 25% deposits could be shut out until the market settles down again.

I thought that already happened with the HCA or whatever it's called now?

Many landlords do not like letting to council tenants though. They are statistically much more likely to damage and less likely to maintain the property. The difference between good and bad tenants makes an enormous difference to the cost of letting both financially and in terms of stress. My parents have a tenant who complained that the kitchen was dirty and needed cleaning. It was clean when they moved in ffs. They've also managed to break the radiators and god knows what else...