Councils might offer mortgages_2

5 Feb 09
Local authorities might step back into the mortgage market following a government move that allows them to compete with private lenders

06 February 2009

By Neil Merrick

Local authorities might step back into the mortgage market following a government move that allows them to compete with private lenders.

According to the New Local Government Network, a small number of councils are seriously considering offering mortgages following the recent drop in interest rates.

Most councils stopped offering mortgages in the mid-1980s after the government set strict limits on how cheaply they could lend money. But the standard national rate (SNR), which partly determines the minimum rate they can charge for loans, fell this week from 5.07% to 3.93%.

Gerald Vernon-Jackson, leader of Portsmouth City Council, said the authority could reduce the number of families in temporary accommodation and help first-time buyers by offering mortgages at lower rates than banks and building societies without going below the SNR.

'We came out of the mortgage market because the private sector started to do it better than the public sector,' he told Public Finance. 'Now that's turned around.'

The SNR, which is meant to reflect commercial lending rates, was cut to 3.93% on February 2 by the Department for Communities and Local Government.

But a DCLG spokesman pointed out that councils are also precluded from lending at below the rate at which they borrow money themselves, which might reduce the impact of the SNR cut.

'It may only affect a small proportion of councils,' said the spokesman. NLGN director Chris Leslie said ministers seemed to be warming to the idea of councils as mortgage lenders. 'A lot of directors of finance are inherently cautious,' he added. 'They need a sense that the government is actively keen on supporting it.'

The NLGN, an independent think-tank, has been lobbying for councils to offer mortgages at the same time as pushing for them to resume house building.

And at an NLGN conference on January 29, Prime Minister Gordon Brown again stressed that the government wants councils to build homes on a significant scale.

Last month, the DCLG published a green paper suggesting that councils could keep all rent and right to buy receipts from new properties.

Sarah Webb, chief executive of the Chartered Institute of Housing, said the changes would provide a 'much-needed boost' to housing. But she added that councils would still need to work closely with housing associations and private builders, especially where they had lost the capacity and skills required for construction schemes.


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