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Leeds City Council’s £2 million home loan fund EXCLUSIVE
Leeds City Council is going into the mortgage business to help first-time buyers on to the property ladder.
In the ground-breaking plan £2m is being set aside – which should help around 100 families.
Under the scheme, money will be deposited with a lender to be announced and used to underwrite up to 20 per cent of a deposit to help buyers secure their first homes.
The bank or building society chosen will pay interest on the amount deposited by the council.
The scheme is for an initial five years and is for first-time buyers
It would be open to anyone from Leeds looking to buy their first property in the city valued at a maximum of £160,000. The cash is aimed at those able to afford mortgage repayments, but unable to put down a full initial deposit – around 25 per cent by most lenders.
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The council would underwrite with the buyer supplying the other five per cent and then being able to benefit from similar repayment terms to a 75 per cent mortgage.
The idea behind the scheme, which was piloted by 11 other local authorities last year, is to provide a boost to the housing market.
It is estimated that each purchase in the existing property market unlocks up to five more transactions in housing chains, providing extra work for associated businesses such as estate agents, removals firms and in construction or refurbishment. The Leeds scheme could help trigger an estimated 365 house purchases in the upward chain.
Coun Keith Wakefield, council leader, who was unveiling the scheme at today’s annual budget meeting of the authority, said: “One of the major obstacles for first-time buyers is the need to find a deposit of up to 25 per cent which is proving increasingly prohibitive, so this is where we can help by offering them the chance to reduce the lump-sum they need put down to a much more manageable level which will make the whole process more attractive.”
People wanting to use the scheme must meet strict criteria set by the lender and Coun Wakefield said: “In no way should this be seen as the council gambling money away like in the sub-prime culture lending to people who were unsuitable in terms of the mortgage repayments they could realistically afford to make.”
The scheme is to be discussed at the council’s executive board March 7 with the first deals expected to be offered to potential buyers later this year.
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Comments
There are 15 comments to this article
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A poor man
Friday, February 24, 2012 at 10:23 AMOh dear chaps, you all seem so involved in this. why not spend less time on here and more time out saving the idealistic world you think or you'd like to live in. Negative equity this negative equity that... boring, lets just all spend the money on dressing cats up as mice and put them in front of mirrors and see how confused they get.
tothepoint5
Thursday, February 23, 2012 at 03:47 PM@MorrisonWatts, why would a house being in negative equity mean the property will need to be repossessed? As long as the homeowner is comfortable where they are and remain in stable employment they fact they owe more than the original mortgage is irrelevant. Another example, the UK follows the likes of the German housing market where the majority rent as they have strong tenant rights (abolished here under Thatcher), and restrictions in place to prevent an overheated housing market. This would mean consumers instead of having to spend huge sums of their income on excessive rent, mortgage, letting agent fees would be able to buy goods and services they need or want. Unless of course the UK economy is doing better than Germany's and the media have just failed to report this.
whirlygig
Thursday, February 23, 2012 at 03:39 PMIn your scenario the £150k is still too expensive, that's why he can't get finance.
morrisonwatts
Thursday, February 23, 2012 at 03:32 PMscenario - House prices drop by 50% plunging many people into negative equity and creating lots of repossesions and people going bankrupt. The business owner from above thinks - brilliant I can now buy a bigger house that used to be £300K for £150K, yippee I get a bigger house for the £150K I have budgeted and that is affordable both to my monthly outgoing and my salary multiplier. But there is something standing in my way, what can it be.... it can't be the price of the house because that has been reduced, I've got good credit, I have a good income, what is stopping me Hmmmm. maybe it's the availability of finance....... He thinks to himself, surely if there as a way to free up finance I could free up the chain for another 5 people, thus unlocking a supply chain that feeds into the following stake holders: Removal companies Tradesmen Estate agents Their landlords Sandwich shops that feed all the above The shops and service providers that these people spend their money inon The people these people pay income tax to and who run the local transport networks i.e local government and local councils The local people whose jobs are created who are then taken off benefits and out of the housing system Which eventually ladies and gentlemen will SAVE the council money and generate more taxes to be spent on local education, better health services and a greater Great Britain. And with all of this they might even make some interest on the loans - Spend £2Million, might make £200,000K in interest...... Actually forget all this, lets just build 10 more houses on a football pitch!!!!!!
whirlygig
Thursday, February 23, 2012 at 12:24 PMB. Next
morrisonwatts
Thursday, February 23, 2012 at 11:24 AMBrilliant - A few comments to reply to, I'll try and see if there are any more before I pick through them. Here's one for you: A man owns a successful business and could afford to pay himself £50K per annum, He is looking at buying a £150K property that requires a 25% deposit (£37,500), so that's a salary multplier of x 3. His monthly repayments loosly based on a 5% interest rate with repayment over 20 years will be roughly £700PCM He will either rent a room out to a friend, take on a lodger or split the cost with his partner bringing his monthly spend to £400. So what would you say would be the one thing stopping him from doing this? A) ability to raise the deposit as any surplus cash will be used to grow the business which may I also ad is creating employment and is also feeding a supply chain. B) The cost of the house C) Only fools and Horses I will reply to the other comments when I get a free minute.
whirlygig
Thursday, February 23, 2012 at 08:31 AMmorrisonwatts spouts the usual nonsense about "affordabliity" and basis it purely on the ability to make a monthly repayment. He sounds like a car salesman, if you can afford the monthly payment the price of the car doesn't matter. - it does He is also misguided with the lower prices, higher interest rate argument. If rates are 12% and a house costs £40,000 amount payable is "fag packet" £400 a month. At 5% interest £400 a month means a house of £96,000 can be purchased, during the heady days rates of 0.75 above base for life were available so a rate of 2% (and lower) was available) this results in £400 a month purchasing a property of £240,000. Consider the desposit requried on these properties, even at a modest 5% - £2,000, £4,800 and £12,000. Which house is now the most affordable for a first time buyer? The affordability fo a property should be based on multiples of salary and not the interest rate, this approach has brought us the where we are now.
Nigel B
Wednesday, February 22, 2012 at 09:56 PMI agree with tothepoint5, get rid of these scemes, leaving the housing market to North Rock. No wonder the council have no money for essential services, like looking after the homeless and old poeple. It should not get involved in mortgage broking.
tothepoint5
Wednesday, February 22, 2012 at 09:32 PMApologies for the number of spelling errors in my previous post, the spell checker was turned off.
tothepoint5
Wednesday, February 22, 2012 at 05:39 PMReaders, morrisonwatts is what is refereed to as a "vested interest", his soluation is for governmentcounils to fund schemes to do up properties for private sector landlords to then rent them to tenants. On the one hand he says that landlords dont want to deal with the counil and on the other hand then says that councils should make payments direct to the landlord - well which is it? The reason the tories are planning to make payments directly to the tenant is so that they manage their own affairs whether they are in or out of work and also to reduce costs. When housing benefit is paid to the landlords (and I work in a benefits office), housing benfit claims are more expensive to process as the council then has to write and deal with 2 parties instead of 1, and has to become involved when the relationship between the landlord and tenant fails - all paid for by the taxpayer. Remember people, morrisonwatts is a letting agent, its in his interests to have high property prices as this will lead to higher rental prices for which they receive a commission.
morrisonwatts
Wednesday, February 22, 2012 at 05:22 PMSteve50, - they are not funding the building of new homes just the access to mortgage finance for people like me that could easily afford the monthly repayments on a mortgage but would need 20 years to save up a deposit, Its a great idea and one the government should have done ages ago. Tothepoint - the biggest obstacle to a first time buyer is not a house price, a house price is irrelevant, the only thing that is relevant is the monthly cost, as long as the monthly spend is affordable and realastic. My parents used to pay 12-13% interets rates, although the house only cost them £40K they were still paying more each month in reletaive terms so the house was no more affordable even though it was cheaper. Playnicely and AJKbeck - the council don't need to build lots of new homes to ease the waiting lists, There are hundreds of empty houses in the housing sector, unfortunately private Landlords shy away from DSS tenants because of problems dealing with the council and also a greater default rate on the rent. What the council should do is make it easier for a private landlord to get 'direct payment' and also hold seminars in how to rent a house out to a DSS tenant, many don't knowunderstand the system. Lets get the derelict and empty houses back into circulation by encouraging property developers to buy them and do them up, offer them low interets, short term bridging loans to allow them to purchase, renovate and then mortgage dilapadated homes, Make it conditional that they have to be rented to a council tenant and bring the empties back into circulation. Building new houses is a far more costly exercise and would also eat into the green belt areas as well as taking years to plana and implememt. I run a letting agency, many of my houses are to DSS tenants, I understand the system, I understand the problems and I beleieve I can offer solutions - you can follow me on Twitter @morrisonwatts or like the Morrison Watts Property facebook Page. Sam Watterson.
steve50
Wednesday, February 22, 2012 at 04:29 PM£2 million would only provide 40 homes with a build cost of approx £50k this seems to benefit more people and would stop those people going onto the waiting lists. More could be spent on building council homes if more emphasis was placed in collecting the excessive rent and council tax arrears
tothepoint5
Wednesday, February 22, 2012 at 04:15 PMThis is ridiculous. The biggest obstacle for first time buyers is excessively high house prices which are maintained y idiotic schemes like ultra low interest rates, printing money, and now councils underwriting mortgages. There is a reason why banks want a deposit of 25% and that's because they know how overpriced properties are. We need to remove all these schemes which simply prop up house prices for the benefit of mortgage lenders, BTL brigade, and all the other vested interest groups. Absolute stupidity. If Wakefield feels this is such a good scheme, he should personally be liable for any loans that default and not the taxypayer.
AJKbeck
Wednesday, February 22, 2012 at 02:45 PMI Agree with Playnicely. The Council leaders have really lost the plot! How many new council homes could be built with this money. which would help to ease the housing back log? There is plenty of land available, especially in areas such as Seacroft, where the EASEL regeneration plans have now seemingly ground to a halt due to the recession. People need low cost housing to rent not to buy!
playnicely
Wednesday, February 22, 2012 at 11:24 AMWhile this is a positive move, this is only going to help 100 people. It'd be great to see our council focussing on the plight of nearly 22,000 currently on the council's waiting list, especially in the light of there being close to 17,000 empty properties in our area (source C4 - property scandal). There are also probably many more than 100 people homeless in our city, who are really suffering - dying even. I'd also hope that our council deposits these funds in an ethical bank. They currently use Natwest, which is owned by RBS.
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