Metropolitan councils are lobbying the Government to pass legislation allowing them to offer competitive mortgages in an effort to halt the collapse in the housing market and the slide into recession.
The move would provide relief for m&e firms struggling to cope with decreasing workloads as lenders continue to restrict mortgage availability.
Figures released by the British Bankers’ Association this week showed mortgage approvals plummeted 65 per cent in the past 12 months.
The idea was conceived by the New Local Government Network (NLGN), an independent think tank, which argues that local authorities’ power should be extended to allow them to offer below-market-rate, whole or partial mortgages to stave off repossession and eviction.
Such action, the NLGN contends, would prop up the housing market, prevent remortgage difficulties and help first time buyers to purchase property locally.
The idea has received backing from London Councils, an umbrella group representing the capital’s boroughs, as well as from Liverpool, Manchester and Portsmouth city councils. They are calling on the Government to take up the proposal at a Cabinet meeting in September, tabled to discuss measures to help revive the mortgage market.
In a letter to ministers earlier this month, a cross-party group of English local authority chief executives wrote: “We call on the Government to urgently consider three reforms. First, legislation to allow councils the scope to offer targeted deals to the public should be considered, including reform of section 110 of the 1980 Housing Act and the provisions specifying a blanket ‘standard national interest rate’ for council mortgages.
“Second, the Government should ask the Public Works Loans Board to actively encourage councils to revive their public banking functions. Third, the Chancellor should set aside a small proportion of public borrowing capacity for council mortgage provision and help frame new guidelines in conjunction with local government.”
A spokesman for the Home Builders Federation, the private sector house builders’ trade organisation, applauded the initiative. He said: “Any move to get liquidity back into the marketplace is something that we would welcome.
“If the Government backed the action, it should lead to increased action in the mortgage marketplace, which in turn will lead to greater house building activity.”
The Council of Mortgage Lenders welcomed the initiative but said: “Our only concern would be that any lending activity comes under the regulation of the Financial Services Authority. This would provide a level playing field for lenders.
When asked whether the measure would reignite the mortgage market by forcing banks to start lending again for fear of losing market share, the spokesperson said: 'Possibly. But from what I've seen the councils' plans are only on a small scale. It could take the LAs some time to get their mortgage schemes up and running and market conditions may well have changed by then