First-time buyers struggling to get on the property ladder in Stone and across the borough could get help with their mortgage as part of a £2 million council scheme.
Stafford Borough Council is considering whether to provide cash from its reserves to help guarantee mortgages for 100 potential home-buyers.
Adopting the Local Authority Mortgage Scheme would allow first-time buyers in the borough to secure a mortgage without having to stump up a large cash deposit.
Currently, lenders are unwilling to fund 95% mortgages, even if buyers can afford the repayments. Many first-time buyers are only being offered 75% mortgages instead. For a typical first property worth £100,000, that means having to find a £25,000 deposit – an unobtainable sum for most first-time buyers.
Under the new scheme, the council would deposit £2m with a leading lender to provide an indemnity for first-time buyers who can afford mortgage repayments, but are unable to obtain the lump sum needed to pay a deposit.
If the first-time buyer meets the lender’s strict credit criteria, the council would guarantee 20% of their total mortgage – up to £20,000. Approved buyers would only need to provide the leftover 5%, or £5,000, to cover the deposit.
The indemnity would allow the bank to approve a 95% mortgage on the terms of a 75% one – and the borrower can then pay back the £20,000 as part of their mortgage repayments, rather than having to find the cash up-front.
The bank would pay the council 4.7% interest per year on the £2m, and would only dip into the fund if a borrower defaults.
If the bank incurs a loss on a home bought under the Local Authority Mortgage Scheme guarantee, the council cash would provide the indemnity.
If a borrower misses so many repayments that their home eventually has to be repossessed, the building could be transferred to local social housing stock.
“The turmoil in the financial and banking market has had a severe impact on both the local economy and on local housing,” said Councillor Patrick Farrington, cabinet member for community at Stafford Borough Council.
“This scheme is aimed at first-time buyers who can afford mortgage payments but not the initial deposit. This will help get them onto the property ladder.”
Councillor Ken Williamson, cabinet member for resources, added: “Once we deposit the £2m with the bank, we would be hands-off. The bank will assess applicants and decide whether to approve a mortgage or not. Our investment will allow the bank to grant 95% mortgages it may otherwise have demanded a deposit for.
“This is a great way to support the local economy and give a boost to first-time buyers in Stafford Borough, and the council will gain money on the interest too.
“It’s win-win.”
Lloyds TSB is the only bank committed to the Local Authority Mortgage Scheme so far – but many more national and local lenders are expected to sign up to give buyers a wider choice of lender.
Stafford Borough Council was one of 11 councils that took part in a pilot to test the feasibility of the Local Authorities Mortgage Scheme.
The council’s Cabinet will now consider whether to adopt it at a meeting on Thursday 9th June.
