A new report published argues that local councils should offer financial support to homeowners threatened by the credit crunch.

The New Local Government Network (NLGN) argues that local authorities should adopt US style Mortgage Support Plans and offer below market rate, whole or partial mortgages to either stave off repossession and eviction, prop up the housing market to prevent remortgage difficulties, or support first time buyers to buy locally.

Local authorities have a history of providing mortgages and would routinely lend to local residents up until the early-1980s. With repossession levels at their highest since the early 1990s and many households struggling with mortgage payments, NLGN argues that councils are in an ideal position to help stabilise the housing market. Such schemes are already commonplace in the United States and is a key part of Barack Obama's strategy for reviving the flagging US housing market.

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Under the scheme, councils would be able to borrow money under prudential borrowing rules and offer support to a select group of people, such as first time buyers or people involved in mortgage difficulties, particularly when numbers of mortgage defaults might impact disproportionately on social housing demand in the area.

According to the report's author, Anthony Brand, said: "Prudential borrowing would support lower-interest debt than the markets can support. With mortgage defaults up 17% this year, and likely to top 100,000, supporting those areas hit hardest could be vital to sustaining communities. Government should set £2bn of its £50bn intervention package aside for supporting these measures, and allowing the hardest hit councils to apply for funding. This could help up to 15,000 people out of difficulty and even provide a long-term profit to the Treasury."

(CD/JM)