Treasury poised to revive council mortgages

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Alistair Darling wants local authorities to take on families who have been refused a loan by commercial lenders.

The measure could help first-time buyers who struggle to raise the big deposits demanded by banks and building societies.

It is one of several options for a green paper on emergency measures to beat the credit crunch. Other ideas include a stamp duty holiday, either by temporarily scrapping the unpopular purchase tax or deferring payment for several years - saving the average London homebuyer almost £9,000.

The move emerged after figures showed a 40 per cent leap in the number of homeowners having their properties repossessed because they failed to keep up with payments. Some 300,000 families are in arrears but are trapped by falling prices. Council mortgages used to be common but many authorities withdrew them when capital budgets were under pressure. Liverpool is one of several cities considering a revival to target families locked out of the market.

The Home Builders Federation said it would welcome any moves to keep the market moving. Executive chairman Stewart Baseley called for "a coordinated package of measures including, crucially, action to get liquidity back in to the mortgage market, as well as further steps to assist first-time buyers".

Another idea is to let council tenants use their "right to buy" discount as a deposit on a new home. Reports today said Mr Darling might reintroduce income support payments to cover mortgage interest when homeowners lose their jobs and are at risk of repossession.

Mr Darling last month revealed in a Standard interview that he is planning a tax-free savings scheme to help firsttime buyers raise a deposit.

The Chancellor said yesterday: "I am looking at a number of measures and I am not going to be drawn on that today because we have not concluded what exactly we need to do."