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Councillors approve plans to help first time buyers get a foot on the property ladder

15/01/13

Councillors today [Tuesday 15 January] agreed to take forward a council scheme designed to help first time buyers get a foot on the property market.

Proprty in Aberdeen. Members of the Housing and Environment committee backed the proposal for a Local Authority Mortgage Scheme (LAMS) that would be aimed at people who can afford mortgage repayments but not the initial deposit for a flat or house.

The committee approved the principle of taking the scheme forward subject to further exploration of the financial and legal position, with a detailed report expected to go before the Finance and Resources committee on 21 February.

A report before today's committee stated that, according to the Council of Mortgage Lenders, the number of first time buyers in Scotland has fallen from a high of 10,000 in the second quarter of 2007 to 4,800 in the second quarter of 2012.

Before 2007 and the financial downturn, lenders were willing to lend with an average 10% deposit, according to the Centre for Housing Market Analysis (CHMA). However, by 2009 the deposit requirement had increased to 25%. Now, according to the CHMA, the average deposit required is 20% of the purchase price.

The average flat price in Aberdeen in the second quarter of 2012 was 145,222, which would require a deposit in the region of 29,044, based on this principle.

The committee heard that the LAMS would require the council to deposit a lump sum with a lender to indemnify the risk of potential defaults on mortgage payments. This would allow first time buyers to be provided with a 95% loan instead of the current market norm of 80%. The first time buyer would pay a 5% deposit.

Using the example above, a 5% deposit would equate to around 7,261. The other 15% deposit would be covered by the council's indemnity.

The council's lump sum would earn interest while with the lender and could be used to make good any loss should a mortgage default occur. New property.

The LAMS would only be open to around 50 first time buyers looking to buy in the second hand housing market. Criteria for participation would apply to:

Current council or registered social landlord (RSL) tenants, as this would release an affordable property for future renting and assist tenants who have no right to buy through pressured area status;

Applicants on the council and RSLs waiting list, thereby reducing this list and housing need;

Other first time buyers.

Councillor Neil Cooney, convener of the Housing and Environment committee, said in the current economic climate many first time buyers who can afford mortgage repayments are being excluded from the housing market because of high deposits.

He said: "In the current financial climate first time buyers are increasingly facing difficulties accessing the housing market as the banks become more rigorous with their lending criteria, especially in relation to deposits required to buy a property.

"The Local Authority Mortgage Scheme is aimed at first time buyers who can afford mortgage repayments but not the initial deposit and would go a long way in helping them achieve that all important first step on the property ladder."