Councils 'should help struggling homeowners'

Local councils should offer financial help to homeowners threatened by the credit crunch, an independent think-tank said on Saturday.

The New Local Government Network (NLGN), which aims to transform public services, says local authorities should offer entire or part mortgages at below market rate to those struggling to meet mortgage repayments, facing repossession, or first-time buyers unable to get a foothold on the market.

Lenders have scrapped cheap deals, introduced higher-rate products, cut the maximum amount people can borrow in relation to the value of the property and tightened their criteria since the credit crunch took hold earlier this year.

"Mortgage support plans" - common in the U.S. and a key part of Democratic presidential candidate Barack Obama's strategy for reviving the flagging housing market on that side of the Atlantic - would help stabilise Britain's housing market and prevent a rush of demand for social housing in councils' areas, the NLGN said.

Under the scheme, local councils would have access to money under so-called prudential borrowing rules, which enables them to borrow money from the Treasury at below market rates.

Local authorities in the UK routinely provided mortgages to local residents, particularly those purchasing homes through "right to buy" schemes, up until the early 1980s.

Anthony Brand, author of the NLGN report, said: "Prudential borrowing would support lower-interest debt than the markets can support.

"With mortgage defaults up 17 percent this year, and likely to top 100,000, supporting those areas hit hardest could be vital to sustaining communities."

He urged the government to set aside 2 billion of its 50 billion pound mortgage rescue package: in April, the government said it would try to ease the effects of a credit crunch on borrowers by swapping government bonds worth 50 billion pounds for banks' riskier mortgage debt.

"This could help up to 15,000 people out of difficulty and even provide a long-term profit to the Treasury," added Brand.

The government said it was trying to help those borrowers in difficulties by offering debt counselling.

"We are also in discussions with industry and lenders to see what more we can do," a government spokesman said.

"We're taking action to support the minority of borrowers who maybe facing difficulties, backed up with a 10 million pound package of measures, including more face-to-face debt advice."