Councils ready to return to offering mortgages.

(From Guardian Unlimited)

Local authorities in Manchester, Bristol, Portsmouth, Lambeth and Hackney are among councils that could soon be offering mortgages to help struggling home buyers onto the property ladder, when the government tomorrow reduces a rate at which they are able to lend money.

Council leaders at the authorities have been arguing that they should be able to provide greater access to financial services since the credit crunch forced lenders to reduce their range of home loans.

A decision by the Communities and Local Government department to cut the "standard national rate" at which councils are able to lend may pave the way for authorities to begin to plug the gap left by building societies and specialist lenders that have stopped lending. The standard national rate will be reduced from 5.07% to 3.93% from tomorrow.

Officials have been exploring schemes to help buyers shut out of the market after banks and building societies stopped offering loans above 90% of a home's value.

Local authorities played a major role in the home loan market in the 1960s, mid-1970s and also the early 1980s until mortgage finance became more widely avail-able and their loans became less attractive. At one point, they had 16% of the mortgage market. During the 1970s, they typically offered loans of up to 97% of the value of a home, with repayments spread over 25 or 30 years. Mortgages were granted to local people only and targeted areas councils were keen to see regenerated.

"Councils used to be in the mortgage business until the 1980s when this facility was wound down by the government, as it was then assumed that the private banks could cope," said Chris Leslie, director of independent thinktank New Local Government Network , which has been lobbying for changes to the regime. "We now know that a diversity of mortgage provision is needed to prevent the current ...