This idea has been rumbling on over the past few months and appears to have reached a head in a letter to the Times today. I think it is absolutely bonkers, though it right that locally communities should decide whether to go ahead with it. The idea that in the current tough economic conditions councils can take on mortgage lending without a very significant risk to the local council taxpayer is just naive.
Councils are not set up to undertake the type of risk management that is required from operating a mortgage book and the statement from Liverpool City Council which said “We are talking about people who were offered a mortgage a few months ago, when the lenders were offering 95 per cent mortages, but are unable to do so now that deposits of 15 per cent are required,” just shows the lack of understanding about the risks involved. There is a good reason why Banks are asking for 15% deposits - it is to prorect their balance sheets. Local authorities have a duty to protect their balance sheets also.
