Councils seek powers to offer mortgages

LONDON (Reuters) - Councils are seeking greater powers to offer home loans in the hope of boosting the struggling housing market and preventing the collapse of regeneration projects in towns and cities.

This move would also generate income from prime borrowers that have been squeezed out of the remortgaging market by the current economic climate, said Chris Leslie, director of the New Local Government Network.

Leslie was speaking after local authority chiefs wrote a letter to the Times newspaper on Thursday outlining the plan. Leslie was a signatory of the letter.

The project would involve councils borrowing "a couple of billion pounds" from the UK Treasury, the letter said.

Local authorities will not be targeting difficult mortgage cases or subprime borrowers, said Leslie. "We will be lending prudently," he said.

The Council of Mortgage Lenders said on Wednesday that mortgage lending dropped 27 percent in July compared to last year.

"With inter-bank lending at a standstill, we believe that there is a pragmatic need for the local public sector to step in and offer much needed new mortgage capacity," said the group of local authorities in the letter.

They are pushing for the reforms to be discussed at a UK cabinet meeting on September 7, said Leslie.

Local authorities were involved in public banking functions until the early 1980s, holding 600,000 mortgages with homeowners in 1980. "Since then, the banking industry has almost universally taken on this role," they said in the letter.