Thursday, 27 October 2011

Ceredigion County Council to Investigate Local Authority Mortgage Scheme for First-Time Buyers

Ceredigion County Council voted unanimously today to support a feasibility study to look into supporting a Local Authority Mortgage Scheme to help first-time buyers enter the market and find a home in the locality.

The motion was proposed by the Welsh Liberal Democrat group on the Council and in a relatively rare show of consensus politics, was supported unanimously by members from across the Chamber.

The scheme is an exciting one which has already been put in place by Welsh Councils in Conwy and Cardiff.

How would a Local Authority Mortgage Scheme work?
Well, as an example...

Say a house is for sale for £100,000 with a deposit required of £25,000 i.e. 25%. The prospective first-time buyer however only has £5,000 i.e. 5% available. The Mortgage provider in the current financial climate requires a deposit of 25% so the purchaser needs to find a 'critical friend' for the remaining 20%.

At this point, the council steps in and offers to be a guarantor for the remaining 20%. The Council does not hand over £20k to the purchaser but rather deposits the £20k with the bank. The bank in turn pays the council interest on this money - one English authority currently receives 4.7%. The Bank only dips into that 20% if the borrower defaults. If the bank incurs a loss the council cash would provide the indemnity.

The bank then provides the purchaser with a 95% mortgage.

In the event of non-payment, repossession and a distress sale, the buyer takes the first 5% risk, the council takes the next 20% of risk, and the bank takes a loss in the property falls below 75% market value. The council, or ratepayer, is taking on the risk that the bank deems unsafe.

Officer Support
Cllr Paul Hinge and Cllr Ceredig Davies who proposed and seconded the proposal rightly spoke to the Director of Finance in advance of submitting the motion to gather the support of the department for such an idea. The officers were enthused about this scheme and now the details need to put into place for a motion to be put forward to the Council in the new year.

Although I've now been on the County Council for 7 years, at the age of 29 I remain the 'Baby of the Council' so I spoke from that perspective on the matter in the Council Chamber during the debate and spoke up for the need for the authority to do all that it could to help young first-time buyers to make that huge first step onto the housing ladder. I was fortunate as I said in Council, to have had the support of my family to make up for the 'black hole' between my savings and the required deposit required for the mortgage. Without that support, I wouldn't be in this house which has been my home for these past near 6 years. But I was fortunate to have that support that is not afforded to all of my age. That is where the County Council have an opportunity to step in and to be that 'critical friend'.

It's an exciting project and I look forward to seeing the detailed policy come back in front of the Council for approval in the new year.

Below is the Motion that was proposed by the Welsh Liberal Democrat group this morning and which was supported unanimously by Independent and Plaid Cymru Councillors.

Ceredigion County Council believes that prospective first time buyers of affordable homes in Ceredigion are at a distinct disadvantage insomuch as they may well fulfil all the criteria set-out for the purchase of their first home but in the economic climate that exists and the requirement of very large deposits, they are unable to get a foothold on the housing ladder or indeed gain access to a home for themselves.

The turmoil in the financial and banking sectors has had a negative effect on the economy and on the local housing market. There has been a particular impact on first time buyers because of the general reduction in the loan to value mortgages from 95% down to 75% necessitating a deposit of some 25% of the house value. Mortgage insurance and shared ownership schemes have helped play a part in reviving the market but are unlikely to normalise the market for first-time buyers who are seeking an affordable home it is likely that low loan to value mortgages are likely to continue for some time. The lack of first-time buyers continues to depress the housing market and this consequently is having an adverse effect on our local economy. As a consequence of this, there is a real need to bring forward a scheme that will help stimulate the housing market and the wider economy.

Ceredigion County Council resolves to enact a feasibility study to ascertain whether a Local Authority Mortgage Scheme (LAMS) is a viable way in which the Local Authority can intervene and help first-time buyers enter the market and find a home in the locality.

Proposed by: Cllr Paul Hinge
Seconded by: Cllr Ceredig Davies

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