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Council chiefs want power to offer mortgages
Nicholas Cecil, Chief Political Correspondent15 Aug 2008
Town hall chiefs in London are drawing up proposals to offer mortgages to thousands of families struggling to buy a home.
They are urging Chancellor Alistair Darling to relax borrowing rules so councils can offer loans to home buyers.
Local authority bosses in the capital are looking at a safety net scheme to avoid repossessions.
They would take over the mortgage, or part of it, of people falling into arrears and then rent back
the property.
But they are also considering whether they could offer a wider range of mortgages for people who two or three years ago may have got a home loan from a bank or building society but no longer can because of the crackdown on "sub prime" lending.
Councillor Jamie Carswell, London Councils' executive member for housing and deputy mayor of Hackney, said: "This would not just be a case of taking bad debt off the private sector.
"We would be looking at people who, under normal circumstances, would be able to get a loan with a bank but are unable to because of the credit crunch."
Town halls already have the powers to offer mortgages but this is very tightly restricted by prudential borrowing rules.
Boroughs in the capital believe by offering home loans they could avoid higher costs of having to deal with homeless families.
But they stress that strict criteria will need to be set so they are not subsidising over-ambitious purchases.
They could undercut High Street lenders but this would need new legislation as it is currently banned by the 1980 Housing Act.
Latest figures on repossessions today are expected to show a rising number of people at risk of losing their homes.
The number of repossession orders made by the courts in England and Wales, an early stage in the house seizing process, rose 17 per cent in the first quarter of 2008 to 27,530, up from 23,438 in the same period of 2007. Figures for the second quarter are published today.
The New Local Government Network is backing a return to mortgage lending by local authorities.
The think tank's director Chris Leslie, a former minister who also worked on Gordon Brown's Labour leadership campaign, said: "Our argument is quite simple: councils used to offer hundreds of thousands of mortgages up until 1980 when the banks and building societies became more competitive and councils were restricted in their role.
"With the banking market failure and lack of interbank private capital, public banking functions should be cautiously revived – led at local authority level where they know their patch best and the state of local housing – to make sure that the normal rules of supply and demand can be resuscitated."
Housing Minister Caroline Flint is considering a raft of measures to address the housing crisis.
But estate agents have accused the Government of hitting house sales by floating the idea of a stamp duty "holiday" which has led buyers to pull out of deals.
A Department for Communities and Local Government spokesman said: "We are looking at a wide range of options for supporting the housing market in the current climate, working closely with industry and lenders."
Reader views (1)
The banks are announcing record losses as a result of lending money to people who can't afford to pay it back and now councils want to pour council tax money down the same hole!
Read my lips: "the reason banks won't lend to high risk borrowers any more is because they are HIGH RISK"
- Andrew, Guildford, 15/08/2008 17:14
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