Councils urged to offer home loans

Jun 16 2008 Liverpool Daily Post

FAMILIES on the brink of losing their homes because of soaring mortgage bills should be bailed out by their local council, a study urges today.

Town halls should step in with offers of cheaper mortgages to victims of the credit crunch, the New Local Government Network (NLGN) think-tank has recommended.

Home loans were often provided by local authorities up until the early1980s – and there is nothing to prevent their return, its report said.

The move would be a boon to many Merseyside families, where an alarming increase in repossession orders by mortgage lenders was revealed last month.

County courts reported big leaps in the first quarter of 2008 in Liverpool (31%) and Birkenhead (9%), as well as in Runcorn (41%) and Warrington (37%).

Meanwhile, the numbers hit with a possession claim – the first stage of threatened action – also soared, including in Liverpool (42%), Southport (61%) and St Helens (32%).

The figures were seen as further gloomy evidence of the effect of the credit crunch, which has dramatically pushed up the cost of new mortgages and slashed back the availability of deals.

Now the NLGN has urged local councils to exploit a policy promoted by American presidential candidate Barack Obama, who wants US states to help hard-pressed homeowners.

Last night, a spokesman for Liverpool City Council said it was eager to examine the proposal, adding: “This is something that we, in common with other local councils, used to do.

“It is certainly something we would consider doing again for people at risk of losing their properties and to prevent repossessions.”

The report urges the likes of Liverpool to make mortgages available below the market rate, to provide part-mortgages to prevent repossessions, and to help first-time buyers struggling to buy locally.

It says local council mortgages died out because of the enormous growth of financial services – but those private firms were now scaling back their lending.

Furthermore, a small number of councils – including Stockton-on-Tees, in Cleveland, and Chichester, in Sussex – already provide mortgages.

Anthony Brand, the report’s author, said: “Prudential borrowing would support lower-interest debt than the markets can support.

“With mortgage defaults up 17% this year, and likely to top 100,000, supporting those areas hit hardest could be vital to sustaining communities.

“The Government should set £2bn of its £50bn intervention package aside for supporting these measures. This could help up to 15,000 people out of difficulty – and even provide a long-term profit to the Treasury.”

The NLGN also calls for local councils to be given greater freedoms to build new homes. In 2005, they built only 239 houses, compared to 173,000 in 1970.