Partly this is a timing issue. When local authorities are cutting back on all aspects of spending, it seems perverse to use council tax cash to help first-time buyers onto the housing ladder.
The terms of the scheme are:
– first-time buyers need only a 5% deposit.
– several local authorities, including Blackpool, Newcastle-under-Lyme and East Lothian, have signed up to the pilot; first-time buyers in those areas view properties and choose a home.
– the local authority provides a cash-backed indemnity of up to 20% of the property value as additional security.
– the first-time buyer can then access mortgage products from Lloyds TSB which would normally only be available to those with a 25% deposit, meaning much lower rates of interest.
The aim is to roll the scheme out across the UK throughout this year. It is aimed at those first-time buyers who don’t have parental help with a substantial deposit. The other advantage is that the buyer will own the property in its entirety – not just a percentage of it, as in shared ownership schemes.
And yet, is the necessary funding going to be available?
No figure has been put on the funds that are likely to be available, nor the number of first-time buyers who will be assisted.
Critics say that the scheme is simply propping up house prices when the best way of helping first-time buyers is to let prices fall to a more affordable level.
There is an element of sense in this, but if first-time buyers aren’t snapping up entry-level properties you can bet someone else will be – buy-to-let landlords who will be renting them to those same would-be buyers.
If that isn’t propping up house prices, I don’t know what is.
Blaming the lender seems a bit unfair, however. After all, it was only a few weeks ago that Housing Minister Grant Shapps was calling for innovation to help first-time buyers onto the ladder.
It could be argued that Lloyds has played a blinder by having local authorities cover any risk involved. If the borrower defaults on the mortgage and the property has to be sold at a loss, the shortfall will be retrieved from the funds put up by the local authority. The lender won’t lose out, but council taxpayers will.
This is likely to be the real hindrance to the success of this scheme, as well as limited funds available in the first place.
But come on other lenders, follow Lloyds’ example: don’t be scared of innovation, we need plenty of it.
Melanie Bien is director of Private Finance
