A new report is suggesting that councils should give financial backing to homeowners threatened by the credit crunch. The New Local Government Network is arguing that local authorities adopt Mortgage Support Plans like those in place in the United States. This would see them offering loans at below market rate and whole or partial mortgages to help prevent repossession and eviction.

The NLGN report says such a system would also prop up the housing market, reducing re-mortgage difficulties and helping first time buyers to buy locally. It argues that councils historically provided mortgages and routinely lent to local people until the early 1980s. Similar schemes are commonplace in America and the NLGN says that with repossessions higher than since the early 1990s and many households struggling to meet mortgage payments, councils are in an ideal position to help stabilise the housing market.

Under its proposals authorities would be able to borrow money under prudential borrowing rules and to offer support to select groups such as first time buyers or those facing mortgage difficulties, particularly when numbers of mortgage defaults might impact disproportionately on social housing demand in an area.

The report’s author, Anthony Brand, says prudential borrowing would support lower-interest debt than the markets can support. “With mortgage defaults up 17 per cent this year, and likely to top 100,000, supporting those areas hit hardest could be vital to sustaining communities. Government should set two billion pounds of its fifty billion pound intervention package aside for supporting these measures, and allowing the hardest hit councils to apply for funding. This could help up to 15,000 people out of difficulty and even provide a long-term profit to the Treasury,” he adds.

In the report the NLGN also calls for councils to be given powers to restrict the amount of Right-to-Buy properties in areas of high housing demand to maintain levels of social housing and for councils to have more freedoms to build and invest in new properties. In 2005, it says, only 239 houses were built by local authorities compared to 173,000 in 1970.