Council may become mortgage provider

The proposed scheme would target low-cost home ownership for people in rural villages, new energy-efficient homes - where reduced energy bills would help owners meet mortgage repayments - and new-build schemes in regeneration areas.

It aims to address the current situation where commercial lenders are typically offering only 70/80% mortgages, and are not lending on certain types of property, such as low-cost homes where restrictions on sales make them less attractive.

It also seeks to tackle the problem of "unaffordable" mortgage repayments caused by lenders' higher interest rates on higher value loans.

The council is considering filling this gap by offering maximum loans of 90% to people who would, under normal circumstances, be accepted by a bank or building society, and who can show they are financially able to make the repayments.

Yesterday council leader Jeff Reid said: "This is all part of our affordable housing strategy and ensuring that people get into decent homes. Whether we actually do it or not, now that the recession appears to be easing a bit, will be a matter for the executive and council to decide.

"One of the major planks of our election manifesto was the delivery of affordable homes and we have to look at every possible avenue to do that."

Conservative group leader, Peter Jackson, said the idea had already been discussed by a cross-party working group on the economic recession, which decided that mortgage lending by the council was not a good idea.

He said: "I will listen to this idea with an open mind. However, my view is the council has no expertise whatsoever in providing mortgages and we would be much better supporting local institutions that have a long history in this field." A council spokeswoman said the scheme was aimed at helping to meet the need for low-cost home ownership in rural villages for local people.

She said the council is currently looking into options for the mortgage scheme, including how financial assessments of applicants should be done.

"We will only accept people with a good credit history, who are not in rent arrears or in breach of their tenancy agreement and who it is considered will be able to sustain home ownership," she added.

Four months ago it was revealed that Newcastle City Council is considering guaranteeing mortgage loans made by a high street lender in a bid to stimulate lending in recession-hit communities on Tyneside. Sunderland Council set aside £3m in funding last October to start giving mortgages to people struggling to secure a loan from commercial lenders.