Local authorities to help first-time home buyers in deposit initiative

The initiative is aimed at people who could afford monthly repayments on a 95 per cent mortgage but do not have the big deposit most lenders are demanding.

Under the scheme, local councils would step in and provide a security worth up to 20 per cent 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 per cent 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, 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 per cent of a property’s value, to create Local Lend a Hand, where the money is instead put up by the local authority.

Interest rates are yet to be stated but LLoyds said they were likely to be similar to those offered through its Lend a Hand scheme, under which someone with just a five per cent deposit can get a three-year fixed rate mortgage of 5.09 per cent with a £895 fee, compared with a rate of 5.99 per cent from its mainstream range if they had a 10 per cent 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.

The launch follows figures yesterday which showed mortgage lending for house purchase dived by 29 per cent during January. Just 28,500 loans were advanced to people buying a property during the month, the lowest level since February 2009 and 29 per cent down on December’s figure, the Council of Mortgage Lenders said.

House prices also fell by 1.4 per cent during January as the property market continued to come under pressure from Government spending cuts and the mortgage drought.