Mortgage role revival for councils

Group of interested councils

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Increasing numbers of councils are considering offering mortgages in an attempt to revive the beleaguered housing market and support homeowners struggling to make repayments.

The burgeoning group, which already includes Barnsley MBC, Essex and Kent CCs, Hartlepool BC, Liverpool and Portsmouth city councils and London boroughs, is demanding legislative reform so local authorities can become mortgage lenders for the first time in a decade.

Portsmouth leader Gerald Vernon-Jackson (Lib Dem) said: "We would be looking to help out those in danger of being repossessed and first-time buyers."

Explaining the financial rationale, he added: "The difference between a council offering mortgages and a private sector lender is we have to deal with the consequences if people are made homeless."

LGC has also learned that the thinktank New Local Government Network (NLGN) is co-ordinating a cross-party lobby group to demand reform. It hopes to formulate an action plan, detailing the powers and flexibilities required, in advance of a Cabinet meeting on 8 September when the housing market crisis is expected to be discussed.

NLGN director Chris Leslie said: "We are looking to get a group of council leaders together to put more pressure on the Department for Communities & Local Government and the Treasury.

"There are probably a few legislative reforms that would need to be made, but councils could use their prudential borrowing powers [where councils borrow against future anticipated revenue] to fund schemes."

Mr Leslie said that while prudential borrowing could put short-term strain on the public sector borrowing requirement — with £2bn-£3bn potentially required — it could eventually result in a surplus for council tax payers.

London Councils, the umbrella group for the capital's boroughs, held a summit last week to examine using prudential borrowing to fund mortgages. Housing spokesman Jamie Carswell (Lab) 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."

Barnsley chief executive Phil Coppard said: "We are looking into our options but we do not want to become the new sub-prime lenders."

Liverpool is considering a partnership with a private lender and would act as a guarantor of mortgages. The council is in talks with potential partners.

Although councils historically gave out mortgages, the Housing Act 1980 dictated that they could not undercut the private sector. Experts therefore say legislation would be required.