A perfect match?

House key iStock 000004543619XSmall 146x219Kent County Council recently launched what is thought to be the first county-wide Local Authority Mortgage Scheme. Hilary Palmer explains how it was put together.

A £24m county-wide scheme to allow the purchase of more than 860 properties by first-time buyers was launched last month by Kent County Council (KCC) in partnership with its constituent borough and district councils.

KCC’s legal team was instrumental in working up the proposal from the outset, assessing the risks and legal requirements of such an innovative scheme.

Since the Kent Local Authority Mortgage Scheme (LAMS) was first proposed, KCC Legal Services has been contacted by several other councils seeking assistance regarding the mechanics and legalities of the project, the terms of the scheme and the match funding arrangements between the county and the boroughs. It is hoped that more county wide LAMS will be launched by other county councils, either using the Kent LAMS model or in other innovative ways.

The scheme, which is only available for purchasing existing properties, is expected to kick-start the housing market throughout Kent.

It is the first time that such a scheme has been launched with a county council working so closely with all its local authorities.

In late 2011 KCC was approached by Kent Forum Housing Strategy, a partnership between KCC, local councils and housing groups and the first of its kind in the country, with proposals to set up the first county-wide LAMS.  

LAMS allows first time buyers who can afford mortgage repayments, but do not have the 20–25% deposit usually required by a lender, to obtain a mortgage with only a 5% deposit.  

The borrowers are assessed as if they had sufficient deposit and, if found to be eligible, are advanced a mortgage of up to 95% of the property value, but on favourable terms.  

The local authority then makes up to 20% available in the form of a cash-backed indemnity to the mortgage provider.  

The borrower still repays the loan as if it were a 95% mortgage, but at a more favourable interest rate than is normally available. In the event that the borrower defaults and the property is repossessed and sold at a loss, the shortfall will be paid by the local authority up to the 20% indemnity limit.

LAMS have already been launched by a number of unitary and district authorities, but a county wide joint scheme has not been set up before this KCC initiative.  

The disadvantage of a single authority entering into a LAMS arrangement is that its impact will of necessity be limited to a small area. KCC’s initial evaluation, on the other hand, revealed that if each local authority were to invest £1m with match funding from KCC, the new scheme could support the purchase of 861 flats, 688 terrace houses or 549 semi-detached houses throughout Kent.  

As the scheme is only available to purchase existing homes it is sure to have a ripple effect up the housing ladder, thereby offering a significant boost to the housing market within a county.

Initially KCC intended to rely on its powers under section 2(1) of the Local Government Act 2000 to participate in the LAMS. Following the implementation of the Localism Act 2011, the switch was made to section 1 of that Act which gives local authorities the power to do anything that is of benefit to the authority, its area or persons resident or present in its area.

Using match funding arrangements with boroughs rather than entering into a direct LAMS allows a county council to increase the amount it can place in a LAMS beyond the usual £2m per authority cap.  

In the case of Kent, KCC can place up to £12m by way of match funding, thereby facilitating a £24m county wide participation in LAMS. Upon the launch of each scheme, KCC advances up to £1m to the borough or district on a match funding basis and it is the borough or district which then places the money into a LAMS and enters into the Scheme Indemnity Deed with the lender.

The first Kent LAMS was launched with Tunbridge Wells Borough Council on 12 September 2012 and KCC anticipates the launch of several other Kent LAMS over the next few months.

Hilary Palmer is a commercial property solicitor at KCC Legal Services. She can be contacted by This email address is being protected from spambots. You need JavaScript enabled to view it..