New localisation schemes boost optimism in housing market
At the end of last year the number of 1st-time house buyers reached its highest level since 2007
. Yet the Big 5 banks are not the only lenders contributing to the increase.
Last year 216,000 buyers received a 1st mortgage
, according to the Council of Mortgage Lenders; a rise of 12% year-on-year
and exceeding 200,000 for the first time in 5 years.
With 540,200 home loans worth more than £80bn secured in 2012, the number of total mortgages was also at its highest during this period
. However, with the 'Big 5' retail banks still reluctant to lend without demanding huge deposits
, many more recent mortgages have been secured with the help of a new type of community lending scheme set up by local authorities.
The scheme began in 2011 when 15 English and Scottish councils, in co-operation with Lloyds TSB, enabled 1st-time buyers to borrow with deposits of 5%
topped-up with public funds.
The initiative, dubbed 'Local Lend a Hand', has prompted other councils to set up their own similar schemes. Sandwell, in the W Midlands, is using the 1985 Housing Act to lend directly to local buyers, putting aside £2m for an initial in-house mortgage scheme
. With new-builds as security, the council expects the scheme to finance itself.
In Manchester, where the City Council feared for the regional economy due to the flat housing market, the 'Manchester Mortgage' underwrites 1st–timers' loans to the tune of 20% without heavy deposits. The authority is also investing in low-cost housing
using its pension fund.
As shared ownership from providers of social housing promises entry to the housing market, helping prospective buyers secure local, affordable mortgages becomes an attractive option
for housing associations (HA).
For example, Curo HA and Bath Building Society have put together a mortgage with a 5% deposit
pitched specially at shared future ownership.
'Local Lend a Hand' and other similar initiatives have taken their lead from Europe, where local state-supported lenders are more active in local affairs
. The regional banking system in Germany, where cities, districts or states own and manage public banks, has caught the eye of UK think-tanks such as Centre for Cities. And following suggestions from the Labour Party's taskforce for small businesses, a local banks network
has been proposed by Ed Miliband.
Clearly public borrowers' faith is moving away from the big mortgage lenders
in favour of 'localisation' solutions. As housing associations and councils support credit unions and offer residents genuine economic opportunity, the impact on local communities and their regeneration post-crash can only be positive.