Teachers, Saffron, Leek United and Furness have joined the scheme which will see local authorities aiding the gap in interest rates between the cost of a typical 75% and 95% loan to value mortgage offered by banks and other lenders.
Lenders will apply normal lending criteria, lending only to those who can comfortably afford to make repayments, but local authorities will either lodge the difference with a deposit into a ring fenced, interest bearing account with the lender, or will provide the lender with a financial indemnity, allowing the lender to charge the preferential interest rates normally only available to those with a much larger deposit.
Participating local authorities will only incur actual costs if a loss is incurred by the mortgage lender further down the line.
The total funds available in each local authority area will be capped by the authority, both in total and per mortgage, to an average of £150,000 per borrower.
Local authority mortgages are already available in the Blackpool area.
Cecilie Booth, director at Sector, said: “The combination of relatively high house prices and understandable caution over lending from banks and building societies means that many potential first-time buyers , are unable to save a sufficient deposit, even though they could afford mortgage repayments on a typical first home.
“This initiative is designed to bridge that gap. Local authorities can both free up more social housing for those who can’t afford to make mortgage repayments and reduce payouts to private landlords and expensive short-term accommodation.
“More people will be able to take the step of buying their first home, stimulating the local housing market and benefitting the wider local economy. “
