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Camden News - by PAUL KEILTHY
Published: 12 February 2009

Town Hall to consider offering mortgages in housing bail out

Scheme would ‘keep market moving’ but requires shift in government policy

CAMDEN’s housing chiefs are lobbying the government to change finance rules so they can offer mortgages and bail out the borough’s housing market.
After a generation on the housing sidelines, the council could return to the mortgage lending market it left in the 1980s by competing with banks and building societies whose coffers are still locked by the credit crunch.
Camden would only act if the government waived accounting rules which dictate that money lent as mortgages comes out of the same funds as spending on schools and leisure facilities, according to Lib Dem housing chief councillor Chris Naylor. He discussed the possibility when he met junior housing minister Iain Wright MP last week.
Cllr Naylor said: “Council mortgages could help residents in social housing who may at last be able to afford to make a move into private housing.
“It could be a way for us to keep the housing market moving and keep local builders in work because we’re shifting unsold homes.
“It could be a way of changing the polarisation in this borough between rich and poor. But there remains a problem which is the government’s rules on spending capital.
“A government policy shift is needed to make it viable.”
Cllr Naylor stopped short of committing the council to the project, claiming that Town Hall finance experts would have to examine the case carefully before taking on additional risk and that other demands on funds could take priority in recession. He also ruled out using the council’s comfortable £80million reserves to go it alone without government assistance.
“Of those reserves only £18m is available for capital spending,” he said. “You wouldn’t have to give many mortgages to eat into that pretty significantly.”
Councils provided around 16 per cent of the national mortgage market in 1979 but they now provide almost no new lending. Council mortgages fell out of favour after the 1985 Housing Act and other statutory changes in the 1980s, when successive governments sought to keep large risks off public balance sheets and Town Halls were prevented from lending below an uncompetitive, government-set National Standard interest rate.
That rate was cut last week, prompting the fresh ministerial discussions.
The New Local Government Network think tank campaigned for the rate cut. Director James Hulme said the need was now for housing ministers to talk to the Treasury about relaxing balance sheet restrictions for Town Halls.
Mr Hulme said: “In the current climate, with the public balance sheet ballooning, an extra couple of billion on local authority balance sheets is not going to bankrupt the country.”

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