The Department of Communities and Local Government has revealed that with effect from today the standard national rate of interest will go down to 3.93%.
This means that councils will be able to borrow money at a better rate, in order to fund mortgage lending to local residents.
Local authorities used to offer mortgages until the 1980s when the government wound down the scheme.
Independent think tank New Local Government Network welcomes the proposals.
Chris Leslie, director of NLGN, says: “The private banking sector’s mistrust of one another means that it should fall to the public sector to ease liquidity and offer mortgage finance to the public.
“With the capital markets more willing to trust local authorities than the private banks, councils could prudently pass on cheaper mortgage capital to some of their residents.”
Leslie adds: “Councils know their patch, are familiar with the calibre of property in their area and have every incentive to see households prosper.
“The council taxpayer can be protected because any mortgage loans are secured against the asset of the property in question, and may indeed make a healthy surplus for the community over time if housing normalises over the coming decades.
“We still believe that councils should have complete freedom to judge for themselves the rate at which to offer mortgage loans to their residents.”