Executive by jizhen1947



Report to:                  EXECUTIVE                Decision
Earliest date for           8th JUNE 2011


1.0    Matter for consideration:

1.1    Average property prices and shortage of available credit for home-buying have
       proven to be an obstacle to many otherwise capable property buyers in getting
       on the property ladder. This has had a knock-on effect, preventing current
       home-owners from moving up the property ladder resulting in stagnation of the
       property market. The Council has therefore entered a pilot scheme with four
       other Local Authorities aimed at first-time buyers who can afford the monthly
       mortgage repayments, but do not have a sufficient deposit saved to enable
       them to access currently available mortgage products.

2.0    Recommendation(s):

2.1    To approve participation in the Local “Lend a Hand” mortgage support scheme
       and agrees a ceiling of £5million for this purpose.

3.0    Category grouping:            Corporate/Strategic

4.0    Corporate Performance Plan Objective :

       Goal 1: Improve Blackpool's Economic Prosperity - Creating Jobs and
       Opportunities for Local People.

       Goal 2: Create a Safe Clean and Pleasant Place for People to Live, Work and
5.0   Information

5.1   In the two decades up to the early 1980s local authorities were major sources
      of mortgage finance to residents. The introduction of the 1985 Housing Act
      meant that Councils could only lend at the higher of the National Standard
      Rate (NSR) or the local average borrowing rate. This made local authority
      mortgages uncompetitive in comparison with private lenders and resulted in
      most local authorities ceasing to offer mortgages. Recent lowering of the NSR
      and the increased difficulty of obtaining loans from private providers has led
      some local authorities to consider re-entering the mortgage market.

5.2   Blackpool Council therefore explored the feasibility of providing mortgages to
      first-time private buyers via a partnership agreement with an Financial
      Services Authority (FSA)-registered commercial lender for the delivery of
      accessible mortgages to first-time buyers within the Blackpool Council
      boundary. However, discussions with FSA-registered lenders with a local
      presence and the placing of a Prior Information Notice in the Official Journal of
      the European Union (OJEU) did not attract sufficient interest. The obstacle
      appeared to be that the scheme needed to be of sufficient size and attract
      national interest to be commercially attractive to the lender.

5.3   At the same time independent financial consultants to the public sector, Sector
      Group, were in the process of attempting to launch a similar scheme with a
      group of pilot authorities and FSA-registered commercial lenders. Blackpool
      Council has taken the lead as one of the five pilot authorities. Sector will
      receive a fee directly from the participating lenders for each mortgage

5.4   It is the group’s understanding that the main obstacle facing otherwise capable
      buyers in the current financial climate is an inability to raise a large enough
      deposit for a mortgage without borrowing from other sources, given that
      maximum loan-to-value (LTV) thresholds have been reduced, typically from
      95% to 75%.

5.5   The benefits of such a scheme will be to:-
      -     support local residents in securing their first owner-occupier home
      -     stimulate the local housing market by relieving the pressure on social
      housing and the private rented sector
      -     stimulate regeneration and neighbourhood improvement in the inner
      areas of Blackpool
      -     kick-start the local housing construction industry and creation of local
5.6    The proposed method of delivery is for the Council to underwrite a top-up of
       up to 20% within an overall Loan to Value ceiling of 95%. The maximum total
       exposure from all underwritten mortgages is £5million. The underwriting is
       provided by placing an equivalent sum in an account with the lender. This
       deposit then attracts a premium interest rate to the benefit of the Council.
       These funds will provide an alternative source of investment for the Council’s
       temporary cashflow balances. This is a five-year contract with an option to
       extend, offering up to 25-year mortgages based on the lenders’ existing

5.7    It is proposed that the maximum loan made available to a borrower is
       £130,000 at 95% Loan to Value, meaning the Council’s maximum guarantee
       in relation to a single borrower would be £27,368. The Council’s underwriting
       would be partly protected by the borrower’s 5% deposit.

5.8    The scheme will be available exclusively to first-time buyers who are
       Blackpool residents or prospective Blackpool residents.

5.9    At launch there is a single participating lender, Lloyds TSB, and they require a
       minimum commitment of £1million from each participating Council. However,
       the scheme is designed to allow other FSA-registered lenders to enter as the
       scheme grows. Similarly there are a number of authorities outside the pilot
       scheme waiting to join once sufficient demand has been proven.

5.10   Lloyds TSB were the forerunning lender due to them already offering a similar
       product called “Lend a Hand” whereby a person close to the lender, usually a
       parent, places a deposit on the lender’s behalf.

5.11   Does the information submitted include any exempt information?               NO

6.0    Legal considerations:

6.1    There were concerns at an early stage that the scheme might contravene EU
       State Aid and Public Procurement rules. However, a submission to the
       European Commission seeking the Commission’s views obtained agreement
       that the scheme did not fall within the scope of State Aid rules. The scheme
       itself is being appropriately advertised via Official Journal of the European

7.0    Personnel considerations:

7.1    Administration of the mortgage book would be undertaken by the lender, so
       the scheme will require minor administration by the Council.
8.0    Financial considerations:

8.1    Default rates are anticipated to be in line with prevailing market rates (0.3%
       per Council of Mortgage Lenders) as these are not sub-prime mortgages. The
       premium interest rate that the underwriting deposit attracts is anticipated to at
       least cover the cost of any defaults.

9.0    Performance management considerations:

9.1    None

10.0   Risk management considerations:

10.1   Apart from the risk to the amounts underwritten, consideration should be given
       to the adverse publicity that could occur should the Council act in what is
       considered to be an inappropriate manner in seeking to recover defaults. Short
       to medium-term economic factors that may influence the level of default (and
       the impact a default has on the risk to the Council’s funds) are:-
       -      potential rises in unemployment
       -      continuing falls in house prices (although this scheme may act as a
       -      increased base interest rates (although still historically low)
       -      increasing RPI leading to an erosion of income in real terms.

       However, as mentioned above these mortgages are not sub-prime so default
       rates are still anticipated to be low.

11.0   Relevant Officer:

11.1   Steve Thompson, Chief Financial Officer

12.0   Relevant Cabinet Member

12.1   Councillor S. Blackburn, Leader of the Council

13.0   Consultation undertaken:

13.1   Several meetings have been convened with all stakeholders and the Scheme
       was considered at a joint Council of Mortgage Lenders / Homes and
       Communities Agency conference on 1st March 2011.

14.0   Background papers:

14.1   None
15.0    Key decision information:

15.1    Is this a key decision?                                                         YES

15.2    If so, Forward Plan reference number:                                         NOT
                                                                                   ON THE

15.3    If a key decision, is the decision required in less than five days?               NO

15.4    If yes, please describe the reason for urgency:

16.0    Reasons for recommendation(s):

16.1    To enable the Council to rollout the Scheme in early 2011/12.

16.2a   Is the recommendation contrary to a plan or strategy adopted or                   NO
        approved by the Council?

16.2b   Is the recommendation in accordance with the Council’s                          YES
        approved budget?

16.3    Other alternative options to be considered:

        None given-
        •       the initially proposed Blackpool-only mortgage support scheme attracted no
        interest from lending institutions
        •       the interest rate that Blackpool Council could offer for provision of its own
        mortgages is uncompetitive compared to the market
        •       the opportunity cost of doing nothing is greater if considering the wider
        impact on social housing, the private rented sector and the local housing
        construction industry and jobs therein.

17.0    Call-in information:

17.1    Are there any grounds for urgency, which would cause this
        decision to be exempt from the call-in process?                                   NO

17.2    If yes, please give reason:

18.0 Scrutiny Committee Chairman (where appropriate):

       Date informed:     31st May 2011          Date approved:   N/A

19.0 Declarations of interest (if applicable):


20.0 Executive decision:


20.2 Date:

20.3 Reason(s) for decision:

21.0 Date of publication:

22.0 Call-in:


23.0 Notes:


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