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News: Should Council run mortgages be introduced?

Sat, 23 Aug 08

Council chiefs have called for extra powers to allow them to offer competitive mortgages in an attempt to rescue the housing market.

In theory it is a sensible plan. Local councils have argued that the public sector should be able to help first-time buyers and those unable to secure a home loan.

However, critics believe that the move could lead to higher council tax if borrowers defaulted.

Councils who support the idea are looking to borrow an extra £2 billion from the Public Works Loans Board, a Treasury agency that allocates funding for capital public sector projects.

They are also pressing for the idea to be discussed at a Cabinet meeting on the 7th of September, when the Prime Minister is expected to draw up the Government's solution to the housing crisis.

Housing Minister Caroline Flint, is said to be sympathetic to the proposals but Treasury ministers are not so keen.  

Meanwhile, in a new sign that mortgage deals are continuing to improve, more high street lenders have announced new, cheaper deals.

Abbey has cut some of its mortgages, with reductions of up to 0.25% on two and three year fixed rate deals, 0.2% off its flexible offset products and its five year fixed low-fee mortgage, and 0.1% off its three year tracker deals.

Yorkshire Building Society (YBS) is launching a new 5.54% rate on its fixed rate deals that expire in October 2010.

Its other fixed rate deal, with a fee of 2.5% of the total, is seeing its rate cut from 4.99% to 4.98%.

YBS's Mortgage Product Manager Tom Girling, said, 'There are signs of increasing activity in the mortgage market which can only be helped by falling rates.'

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