Stepping Stone Policy

Helping first-time buyers get a step onto the

property ladder in Middlesbrough

Strategic Housing
Regeneration Service
Middlesbrough Council
PO Box 504
Civic Centre
Middlesbrough
TS1 9FY
Introduction
  1. Middlesbrough Council and its partners want to create safe, sustainable neighbourhoods where people want to live now and in the future. A key aim of Middlesbrough’s Housing Strategy is to reverse the town’s population decline which has decreased by 21,000 since 1971. It is important that Middlesbrough retains the economically active and aspirational households to help stimulate the local housing market and local economy.
  1. Middlesbrough has a major problem in terms of access to homeownership. Research has shown that only 37% of first-time buyers can afford to buy a new entry level home costing £72,500[1] due to low incomes and difficulty obtaining mortgages. The requirement for a large depositis also a significant barrier to first-time buyers accessing the housing market.
  1. It is important that there is a range of housing options available in the town, including affordable homes for those households who are struggling to access homes, either for rent of for sale, on the open market. Many people in Middlesbrough aspire to own their own home. Middlesbrough Council is committed to assisting those who do want to buy a property, but are struggling to purchase on the open market.
Aims of the policy
  1. The aim of the Stepping Stone Policy are to:

a)assist first time buyers to get on to the property ladder;

b)increase affordable housing options;

c)increase the number of economically active households living in Middlesbrough;

d)increase owner occupation in Middlesbrough; and,

e)support regeneration schemes in Middlesbrough.

Innovative assistance for first-time buyers

  1. An innovative scheme has been introduced to assist first-time buyers to get onto the property ladder on selected new developments in Middlesbrough. The Council will provide assistance in the form of an equity loan of up to 50%, making the buyer’s mortgage payments more affordable. The buyer would be required to pay a deposit to the lender of 5% of the property price. This differs from other products available because the equity loan can be offered for up to 50% of the purchase price; and, there will be no interest charged to the buyer for the equity loan, making the property affordable for as long as is necessary. There will no arrangement fee for the buyer to pay, fees will be paid to the Council via the section 106 financial contributions from the property developers.
  1. This is a discretionary policy and will only be available subject to the availability of Council resources.

Registration

  1. First time buyers that are interested in benefiting from a Stepping Stone loan are asked to complete an application form. Forms are available from the Civic Centre, at the relevant developments, they can also be completed online at
  1. Applications will be acknowledged within 5 working days. Applications will be assessed within 28 working days and all applicants will be advised of the outcome. If an application is unsuccessful in terms of registering on the scheme, reasons will be provided.
  1. All applicants’ details will remain on the Stepping Stone Register until they either find a suitable property or ask for their application details to be removed. The Register will enable the Council to match qualifying applicants to the suitable available properties at Acklam Green, Middlehaven, Grove Hill and Trinity Crescent.
  1. If applicants are interested in this service, but properties in their area of preference is not available at present, they can register their details and what areas they are interested in. Should future funding become available, the equity loans may be extended to other areas based on demand.
  1. This application process is only applicable to those wanting affordable home ownership options, not affordable rent options. Those wanting to apply for properties to rent should register on the choice-based lettings scheme, Compass at

Eligibility

  1. To be eligible for an equity loan, the applicants must:

a)be aged 18 years or over;

b)have an excellent credit rating; and,

c)be in a position of being unable to purchase a property on the open market, which will be assessed by the applicant/s level of income and/or proof from a mortgage lender.

  1. You cannot apply if:

a)You have County Court Judgements (CCJs) registered against you and you have not repaid the debt;

b)You have had a home repossessed within the last 6 years;

c)You have been made bankrupt in the last 6 years;

d)You are self employed and do not have audited accounts for the last two years, and a projection for the current year or copies of your tax return for the last three years;

e)You have rent arrears for a current or former tenancy;

f)You have a history of anti social behaviour;

g)You or a member of your household who will be living with you, own or have a share in another property/home, including property which you rent out*; or

h)You, or a member of your household who will be living with you, have an existing mortgage*.

* There are exceptions to these requirements, which mean that an applicant may be eligible to join the Register, for example:

  • If an applicant is currently involved in a relationship breakdown and where purchasing power, including the proceeds of the sale of an existing home, are insufficient to enable a purchase of a home on the open market;
  • The Council has accepted you as Homeless under Section 193, Part 7 of the Housing Act 1996 (as amended by the Homelessness Act 2002).

Homes in Middlesbrough

  1. The new build developments in Middlesbrough where the equity loans can be used to assist first timer buyers are:
  • Acklam Green (Bellway Homes)
  • Middlehaven, including Communities in a Cube (BioRegional Quintain)
  • Trinity Cresent (Keepmoat Homes)
  1. Potentially, the product could be rolled out to other sites in the future, dependant on demand and funding.
  1. Applicants can find out what properties are available by contacting or visiting the relevant development. If properties are not currently available, applicants’ details will be kept on the Register and contacted once a property is available.

Stepping Stone loans

  1. The Council will provide the buyer with an equity loan of up to 50% of the purchase price. This enables first time buyers to get on the property ladder to purchase a property with an affordable mortgage and deposit. Effectively the Council pays for up to 50% of the property, depending on the buyer’s circumstances. An example of how an equity loan can assist a buyer to purchase a property is set out in Table 1 below.

Table 1: Example of buying a property using a Stepping Stone loan

Market price of a 2 bedroom house for sale at Acklam Green / £120,000
The buyer requires a 50% equity loan from the Council / £60,000
The remaining amount that the buyer is able to afford is 50% / £60,000
The buyer requires a 5% deposit (on £120,000) / £6,000
The buyer also requires a mortgage for the remaining 45% / £54,000
  1. Table 3 shows that the buyer can purchase a new £120,000 property with a deposit of £6,000 and a mortgage of £54,000. As a comparison, table 2 below shows the level of finance the buyer would require if purchasing the same property on the open market.

Table 2: Buying a property on the open market (without assistance)

Market price of a 2 bedroom house for sale at Acklam Green / £120,000
The buyer requires a deposit of 20% / £24,000
The buyer also requires a mortgage for the remaining 75% / £96,000
  1. There will be no interest charge to the buyer for the Stepping Stone loan. There will be administration costs to arrange the equity loan which the buyer will be charged for. The Council will recover the funds when the homeowner chooses to sell the property, which they will be free to do at any time. The Council will be entitled to a share of the sale proceeds equal to the percentage contribution e.g. if the Council provided a 50% equity loan, the repayment will be 50% of the total value when it is sold.
  1. Although the first time buyer will have a mortgage less than the full purchase price of the property, they will be the legal owner with 100% title to the home. The Council’s entitlement to a share of the future sale proceeds is enforced through a second charge on the property. This is done in the same way that a buyer’s mortgage lender will secure its lending through a first charge on the property.
  1. The Stepping Stone loan will be a second charge on the propertyand will include details on the following points:

a)the applicant must repay the equity loan after 25 years at the prevailing market value;

b)on any transfer of ownership or sale of the property within the 25 year period the equity loan will be repaid to the Council, this will be set out in the Terms and Conditions of the charge, including if the homeowner dies or if there is a marriage break up; and,

c)the homeowner must consult with the Council prior to remortgaging.

  1. If the homeowner’s circumstances change, they will be encouraged to redeem the equity loans in part (known as staircasing) to increase their ownership of the property.
  1. Prospective buyers should always seek independent financial advice before proceeding.

Priority / short-listing process

  1. If there is a number of people wanting to purchase the same type of property on the same development, there will be a priority system and applicants will be short-listed accordingly. When properties are available the Council will apply the following selection criteria to determine who will qualify:

a)Area of choice requested

Applicants will only be considered for homes in the areas they have chosen on their application form.

b)Property type and size

Applicants will be considered for the property types they have requested on the application form. Generally, households will qualify for sufficient accommodation/bedroom numbers to suit their family size plus one additional bedroom, e.g. a couple or single person households would qualify for both a one bedroom and two bedroom property. In exceptional circumstances property size will be at the discretion of the Council.

c)Ability to purchase the property at the agreed sale price

An assessment of an applicant’s income and savings will be undertaken on the release of each scheme/property, as sale prices will vary. Applicants must have:

  • the ability to purchase the property at the agreed sale price; and
  • be unable to purchase (a similar property) without assistance.

d) Date order

The date the application was received.

Appeals against refusal to join the Register

  1. Applicants will have the right of appeal to the Strategic Housing Services Manager against any decision made by the Council relating to eligibility. Appeals must be made in writing, stating why the case has been treated unfairly, and should be sent to:
Strategic Housing Services Manager

Middlesbrough Council

Regeneration

PO Box 504

Civic Centre

Middlesbrough

TS1 9FY

Exceptions and special circumstances

  1. Occasionally, circumstances will arise where applications are received which are not compliant with the eligibility criteria or terms of assistance or where, in extenuating circumstances, an amendment to the equity loan criteria is requested. In such cases the Council reserves the right to apply or overrule the policy, if to do otherwise would not, in the absolute discretion of the Council, be reasonable or practicable.
  1. In such circumstances the officer dealing with the application will convene an Exceptions Panel to consider the facts of the case and the officer’s recommendations. The Panel will require a report appraising the implications of the case and may consider additional information in relation to households’ social or economic circumstances that can be evidenced on an individual case basis. The applicant will be informed of the reasons why the case is being considered as an exception and further information to inform the decision making process may be requested. The Exceptions Panel will determine whether to apply or overrule the policy.
  1. The Exceptions Panel would be made up of the Executive Member for Regeneration and the Director of Regeneration, or a senior officer from the housing service nominated by the Director of Regeneration.

Complaints

  1. All complaints received will be recorded and dealt with in accordance with the Council’s Corporate Complaints Procedure, which can be accessed via the Council’s website

Review

  1. The policy will be reviewed every three years, unless there is new legislation in the interim that means the policy is no longer fit for purpose.

Further Information

  1. If you have any queries on the Stepping Stone service, or would like additional information please contact:

 /
Stepping Stone service
Middlesbrough Council
Regeneration
PO Box 504
Civic Centre
Middlesbrough
TS1 9FY
 / 01642 729172
 /

1

[1]Strategic Housing Market Assessment, 2009