Labour ‘must act to save homeowners’

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The controversial plans, drawn up by two former Bank of England economists, could cost the government up to £50 billion over the next five years but might help put a floor under housing prices.

The proposals are contained in a report, "A truly unconventional monetary policy for the UK," penned by Shamik Dhar and Danny Gabay of Fathom Financial Consulting. The plan sees the government purchasing homes at a discount of around 20% below their market value and renting them back to the owner.

The government could eventually sell the houses back to the private sector, or remain a landlord.

Some 75,000 repossessions have been predicted for 2009 by the Council of Mortgage Lenders and Fathom predicts 375,000 owners could lose their homes in the next five years.

"We're running out of ammunition as interest rates approach zero," said Dhar.