Town hall leaders have proposed that the Government sets aside a £1.5bn fund to help around 60,000 first time buyers onto the property ladder, as part of a package of proposals to kickstart the housing market and cut the council house waiting list.

At a speech to housing chiefs in London, Cllr Margaret Eaton, Chairman of the Local Government Association (LGA), called on ministers to step up the speed and scale of intervention in the housing market.

A targeted £1.5bn scheme would build on existing 'Homebuy' projects and help around a quarter of potential first time buyers put down a deposit on a property. It would also go a long way to unblocking the ailing housing market which is suffering from a severe lack of first time buyers who are unable to borrow enough money for a mortgage without sufficient equity.

Cllr Eaton proposed a series of measures to free up councils to address the chronic lack of affordable housing. There are four million people waiting for an affordable house, a figure expected to rise to five million by 2010 because of repossessions caused by the credit crunch.

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Cllr Margaret Eaton, said: "Thanks to the credit crunch, the first time buyer is now an endangered species and the knock-on effects have helped to cause the complete stagnation of the housing market. Falling prices have done little to help hundreds of thousands of people get a foot on the ladder because they are now unable to get a mortgage unless they have a hefty deposit.

"A well targeted and selective deposit scheme wouldn’t just help out tens of thousands of people get a house they can call a home, it would also go some way to unblocking the housing market that has ground to a halt.

"The scheme would need to be closely monitored to ensure that borrowers don’t overstretch themselves. It could be made available to those who would be least likely to secure decent housing in the private rented sector, such as families with children.

"There is a desperate shortage of good quality council housing that has left four million people in limbo, on the waiting list for a house. It is totally unacceptable that so many people should be on the waiting list and be forced to sleep in B&Bs or to stay with friends while they wait for a house.

"The current system, that sees town halls stripped of rent from council houses, means that many don’t have enough money to maintain existing stock, let alone build the new houses the nation urgently needs. Letting councils keep money from rent and right to buy would give them the resources to plug the huge waiting list that continues to grow with the effect of the credit crunch.

"We need to create a housing finance system that will deliver good quality homes and services to council house tenants and allow councils to develop and manage their homes properly."

(CD/JM)