Proposals for councils to offer mortgages

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by Kay Murchie

Local authority chiefs in London want to offer mortgages to those struggling getting onto the property ladder.

Councils are urging the Chancellor, Alistair Darling, to relax borrowing rules so they can offer mortgages to thousands of families struggling to purchase a home.

The mortgage squeeze has meant that prospective buyers have been unable to secure funding. In addition, costs associated with mortgages remain high so only those with deposits of around 20% can secure a mortgage.

Recent figures from the Council of Mortgage Lenders revealed that gross mortgage lending slumped by 27% last month compared with July 2007.

The proposals set out by town hall chiefs would involve councils borrowing ‘a couple of billion pounds‘ from the UK Treasury.

According to Chris Leslie, director of the New Local Government Network, the new measures would also generate income from prime borrowers that have been squeezed out of the re-mortgaging market by the current economic climate.

However, the local authorities said strict lending rules will mean they will not be targeting those such as sub-prime borrowers.

Councils are pushing for the measures to be discussed at a UK cabinet meeting next month.

In 1980, 600,000 mortgages with homeowners were held by local authorities. However, since that time, the banking industry has almost universally taken on this role.