Councils push to become mortgage lenders

With repossession levels at their highest since the early 1990s, both the NLGN and London Councils argue that local authorities are in an ideal position to help stabilise the housing market.

The Council of Mortgage Lenders (CML), however, warned that local councils would have to ensure they fulfilled the regulatory lending requirements.

"While it may help first-time buyers and homeowners having difficulty remortgaging, if this means providing higher risk loans then local authorities will need to consider the full implications of this," a CML spokeswoman said.

Norwich & Peterborough Building Society however supported the idea and said it could actually be good for the mortgage industry.

"With such contraction in the market there is room for other bodies to come in and lend.

"We are getting more applications than we can process so this is not a bad thing for those lenders who are still lending," said Alison Rolls, head of communications at Norwich & Peterborough.

Although it is not yet clear whether the government will allow councils to offer mortgages, NLGN believes that if the government does back the initiative it would not be long before the proposals could be put into action.

"It would take no time at all to do it," said Hulme, adding: "It just needs to be agreed with the Treasury as well as how much money they can allocate to it."

By the end of this year, the CML predicts that repossessions will rise to 45,000 with mortgage arrears expected to rise to 170,000.