Councils to start mortgage lending
Mortgages could start to come from councils
Friday, 20, Feb 2009 08:32
Local councils are to start mortgage lending - in a bid to aid local property markets.
A decision this month from the government to cut the interest rates charged to local councils from 5.07 per cent to 3.93 per cent means more authorities are expected to enter the markets.
A number of councils have announced support for starting lending - either directly or through partners - but details are still being put together with discussions with central government.
Steve Reed, leader of Lambeth Council, said: "The problem with the housing market isn't the lack of properties for sale; it's the lack of mortgages even for people with stable jobs and good incomes.
"If councils can help those people borrow the money they need to buy a home, then we can get the housing market moving again, stop the crash in house prices, and help bring the economic recession to a swifter end."
He added councils "certainly won't be lending money to people classed as subprime who have no chance of paying it back".
"If we can use our financial muscle to help financially secure people get the housing market moving again and, that way, ease the country out of recession, then that is a duty we owe to everyone who hopes to keep their job and protect their income through the downturn."
James Hulme, head of communications at thinktank New Local Government Network, explained up until the 1980s councils were the main providers of mortgages.
"Because the market is not providing a solution we must look at whether the authorities step in," he said.
"Whilst we still accept that in normal circumstances these things are best left to the markets, we feel that because of these particular circumstances that the state should step in and give authorities the opportunity to provide mortgages."
He claimed there was a lesser risk for local authorites in mortgage lending as they knew the local area and they should not head into subprime deals.
"We are absolutely clear that councils should treat every proposal as a commercial bank would," Mr Hulme said.
"This is not about subprime mortgages. But the fact that there are people that are being really hit because they have less than a 25 per cent deposit - which is a lot of people - it may be that authorities can step in for those people and offer them a decent rate mortgage.
"Or for first time buyers that are being rejected by most lenders because they don't have substantial deposits, local authorities could step in there."
He added local authority mortgages should be aimed at people who two years ago would have easily got a mortgage and now are being rejected by the banks.
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