The Local Authority Mortgage Scheme (LAMS) in Wales has been suspended after a decision from the Welsh Audit Office.
LAMS is a UK-wide scheme – there are 82 versions of it in England and several waiting to launch in Scotland. The scheme aims to help people get onto the property ladder through councils acting as guarantors for first time buyers.
Welsh authorities Cardiff, Ceredigion, Conwy, Rhondda Cynon Taf, Pembrokeshire and Powys are at various stages with LAMS (some of the schemes have been fully taken up and closed). However the Wales Audit Office (WAO) has stated that for accounting purposes, the money that councils set aside as indemnities for partner mortgage lenders should be classed as investment, not as capital expenditure. A report from Powys County Council from May states that the WAO first provided its view circa June 2012. The Welsh Local Government Association (WLGA) advised Welsh authorities of the WAO’s view in July 2012, continues the report.
The originators of LAMS, Sector, entered into discussions with the WAO and the WLGA and obtained counsel opinion confirming that amounts placed with lenders be classed as capital expenditure.
However the WAO is standing by its opinion. Its statement to Room151 reads: “The WAO has considered the appropriate accounting treatment for the cash backed schemes which has included obtaining external legal advice. In our view, proper accounting practice would require authorities to account for the deposit as an investment. We have advised auditors in Wales of this view and they will discuss the accounting treatment of LAMS arrangements in Wales with local authorities as part of the audit of the 2012-13 financial statements.”
Sector is now talking with the Welsh government about the matter but has suspended LAMS in Wales. Ann Owen is S151 at Powys. “At the moment our scheme is open and we are going with the treatment as investment as opposed to cash,” she explains. “It comes down to a difference in accounting treatment – by the time the WAO advice came out we were at a different stage of our scheme to others; some hadn’t launched so I don’t know whether it will have changed their opinion on things.” Gwyn Jones, finance director at Ceredigion, also confirmed that his authority had changed the accounting treatment.
Cardiff is also now treating the payment of £1m to Lloyds as an investment. Christine Brain, who deals with LAMS at the council, said: “Following discussions with the Welsh Audit Office the council has amended its planned initial treatment of a £1m cash advance to Lloyds Banking Group as part of the Local Authority Mortgage Scheme to not being directly or indirectly linked to the mortgage indemnity, i.e. not used towards the mortgages it provides. This has meant that within this Statement of Accounts the council treats the payment as an investment for treasury management purposes, rather than as capital expenditure. The provider of the scheme views this approach as not consistent with the legal agreements in place and has withdrawn the scheme in Wales. ”
Cecilie Booth is director at Sector. “LAMS was never intended to create an investment opportunity,” she says. “If it is treated as investment and local authorities are using it as an investment vehicle rather than the provision of mortgage support it is not doing what we set out and sought legal advice and State Aid permission to do.”
“From our point of view, we have taken legal advice and have a State Aid application based on a scheme that is constructed a certain way. When local authorities do something different it puts everybody at risk and that is our position. We won’t be able to re-open the scheme in Wales if we found it puts local authorities there at risk of a challenge because they are not operating the scheme the way it was intended to be operated.”
The closure of the scheme would leave Wales with very little ammunition for helping first time buyers, as Help to Buy does not operate there. As one council noted in a report on the subject: “Increasing the supply of affordable housing is a priority at a national and local level and as such the LAMS has been an important tool in assisting residents into home ownership.”