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Lloyds Banking Group's PR machine has whirred into action today, helping the owner of the Lloyds and Halifax brands to a dollop of positive news coverage for a change.

Stephen Noakes, Commercial Director of Mortgages at LloydsTSB has been quoted as saying: “We know that a lot of young people turn to the Bank of Mum and Dad to get their foot on the ladder, but that's not a solution for everyone. Helping people to buy their first home is crucial in achieving and maintaining a sustainable housing market."

In becoming the first lender to support a new scheme that's actually the brainchild of Sector Treasury Services, part of the Capita Group, LloydsTSB is hoping to help more people onto the property ladder.  The largely state-owned bank will work with local authorities, who will effectively 'top-up' the deposits of first timers to help them achieve the 25% downpayment that many lenders now demand in return for their best rates.

The five local authorities participating in the pilot (Blackpool City Council, Warrington BC, Northumberland CC Newcastle under Lyme BC and East Lothian Council) will provide financial assistance up to a maximum of £70,000 to "fund" up to 20% of a first timer's mortgage, with the purchaser contributing at least 5%. 

But don't expect a cheque through the post - the 'donated' funds will sit in a commercial savings account at LloydsTSB where it will act as security and earn the local authorities a notional rate of interest.  The homebuyer still effectively borrows the full 95% of the purchase price (assuming they put down 5% towards the deposit) and will have to pay back in full over the course of the mortgage. 

The local authority will only lose their funds if the homebuyer isn't able to maintain their mortgage repayments, is evicted and the bank cannot recoup the full value of the loan and associated costs from the repossession and sale of the property.  Tax payers may well be forgiven for being sceptical.

Should all go to plan, however, the homebuyer gets a foot on the ladder and the local authority will see less of a strain on their own housing stocks and a potential reduction in the money paid out to private landlords and for short term accommodation.

Whether this scheme will simply serve to keep prices artificially high and backfire on the local authorities is anyone's guess.  But if it simply grants first timers access to decent interest rates then it has to be worth a closer look.

WANT TO COMMENT?  Join the debate in the First Timer Forum
USEFUL LINKS: Sector Treasury Services; LloydsTSB
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