Newcastle council to offer 95 per cent mortgages

Since the 1960s the west end of Newcastle has been defined by its residential tower blocks.

15 storeys high and based on a Swedish model of living, they were a revolution – a departure from the rows of terraces used to house the workers of the nearby shipyards and tank factories on the Tyne.

But by the 1980s the revolutionary model was falling apart and so were the flats.

I’ve come back to Newcastle and to what used to be called Cruddas Park – or Riverside Dene, as it is now called. I’ve heard that the council here is once again embarking on a remarkable and controversial scheme.

Newcastle City Council has spent £40m refurbishing these once-tatty flats but was unfortunate enough to begin work before the housing crash. Since then the main housing developer pulled out leaving the council in the lurch with a half finished project.

Newcastle City Council is using public money to provide mortgages of up to 95 per cent to people with low deposits.

The big problem for the local authority now is selling them. But there is another problem. Since the banking crisis there isn’t a building society or bank in the land which is willing to lend on them. They are seen as bad for business. A risky loan.

So Newcastle City Council has turned to what it says is the last remaining option: to use public money to provide mortgages of up to 95 per cent to people with low deposits – all in an attempt to get rid of the flats.

“If this is a risk, it’s a calculated risk,” says Cllr John Faulkner, the LibDem leader of Newcastle City Council.

“We are not entering into this lightly. We have sought the help and advice of a local lender who will carry out all the relevant checks for us, and we are confident that we will be able to sell these flats.”

Newcastle City Council, like all local authorities, is facing some very tough decisions. As part of the coalitions £6.25bn of spending cuts, local authorities are expected to find £2bn of that through job losses and service cuts.

Newcastle City Council says this is money it has already borrowed, and needs to make it back to fund other projects. A sign, perhaps, that local authorities are turning to ever more risk options in this tough, austere world.

“It is going to be tough for us as a council, but we are well run and we are well funded so people should not think that this is a reckless thing.”

What concerns some is the type of mortgages Newcastle City Council is offering. The 95 per cent mortgage – where borrowers need only find a 5 per cent deposit – have all but vanished from the high street since the banking crisis, and are seen by some as more risky than other products.

Ismail Urtuck, senior professor in banking at Manchester Business School says the council needs to do its checks.

Public money is being used to finance the loans, and the council must ensure people are creditworthy. Professor Ismail Urtuck

“Ideally, the council would be dealing in 75 per cent mortgages. They are safer and they provide more of a cushion if the market suddenly crashes or the borrower defaults.

“What makes this more risky is that it is public money being used to finance the loans and the council must ensure that people are creditworthy.”

The foyer of The Willows, one of the completed tower blocks, is impressive. It has the feel of a hotel lobby, with wood panelling and leather sofas. The lifts are new and carry us to the tenth floor, where we are shown of the split-level, duplex apartments.

Brain Dixon, housing manager, tells me that this is a “quality product” which be sought after.

“This area is great to live in. Just down there are all the shops and the university. There are already lots of young professionals living in this area and maybe they will want to buy a flat in this brand new development.”

It is a hope and a gamble, as Mr Dixon admits.

A short walk from the neat landscaping of the flats and you enter a whole different world. A 1980s shopping centre with graffiti and peeling pain, dark alleys and concrete underpasses. Is this really where young professionals will want to live?, I ask Cllr Faulkner.

“We have conducted marketing and sales research, and the evidence coming back is that people will want to live here.

“But that research also told us that the biggest problem would be getting building societies and banks to finance the deal. That’s why we’re doing this. But we’re confident people will want to live here.”

House prices in Newcastle have risen by more than a third since 2003, according to the Land Registry, and across the country millions of first-time buyers have been priced out by a rising market and a demand for huge deposits.

It sounds like an easy way to get onto the property ladder. Frankie Clarke, graduate, aged 25

In a city centre bar 23 year-old graduate Frankie Clarke says she is desperate to get on the housing ladder.

“The problem is the deposit. Something like £25,000 is just way out of reach for me.”

So would she be tempted by the council’s 95 per cent mortgage offer?

“It’s definitely something that I would give some serious consideration to. It sounds like an easy way to get on the property ladder and would help me get that house I want so bad.

“But the area would put me off. I’m not sure I would like to walk back from work on a dark night.”

The council stands to lose millions of pounds if it cannot sell these flats as the reality of this new world takes hold. Councils all over Britain are turning to previously risky ventures in a desperate bid to make ends meet.