ACOUNCIL in Hampshire wants to succeed where high street lenders have failed and launch its own “bank” to boost the dire local housing market.

In the first of a trio of recession- busting initiatives, Eastleigh Borough Council will soon offer residents low-interest loans to “top-up” their deposits and get a foot on the housing ladder.

The leader of the Liberal- Democrat controlled council told the Daily Echo he was prepared to write a “blank cheque” to revive the borough’s recession-hit economy.

However, anti-council tax campaigners and financial experts have warned the council could be taking a major risk with taxpayer’s money by loaning cash to low-income earners.

A second scheme in the summer will see the council use its excellent credit rating to secure loans to purchase new-build properties currently sitting empty across the borough. They will then be rented out to private and social housing tenants.

In the final stage of the threepronged attack, the council plans to give builders a guarantee that they would buy developments waiting to be built, at an agreed minimum price, if they remain unsold months after completion.

It means developers would be assured of a sale, helping them secure financial backing from lenders, while the council would rent the properties out and make a profit when the housing market finally recovers.

Other district, borough and city councils across Hampshire are now investigating the feasibility of setting up similar rescue packages.

Funding will come from historic council housing receipts worth about £7m – cash usually ring-fenced for housing investments - and bank loans taken out by the council.

Cllr House said the council was debt-free and the schemes would have no effect on council tax rates.

The mortgage deposit scheme will go before the cabinet next week. If approved, hopeful homebuyers in the borough will be invited to ask the council for a loan to help them “top-up” their deposit. For example, if a prospective homebuyer has saved £10,000 cash for a deposit but the bank rejects their application for a £150,000 mortgage, the council will step in and hand them a loan at about ten per cent of the property’s value (£15,000) to help secure the mortgage.

Cllr House said the loans would be in-line with current interest rates offered by high-street lenders.

“Some building societies have put the threshold for loans at such a low rate now that a lot of people, who could afford to pay mortgages, can’t get one,” he explained.

“The top-up will give the building society confidence they will get their money back and we are the ones who are taking a little bit of risk by helping people.”

In the summer, a stand-alone property company will be set up through which the council can also begin buying vacant newbuild homes in the borough and letting them in the private market or through social housing associations.

Cllr House said: “There are hundreds of new homes in the Eastleigh area that have been sat empty for over a year because developers haven’t been able to shift them.

“But we know that in the long run the value is going to be there in the property and that we will make our money back. So we are prepared to take a degree of risk for a period of time, maybe one year, two or even three years while the market recovers.”

He added: “If it works, we are prepared to have a blank chequebook because we have got longterm confidence in the market, even if it dips a bit over course of the next year.”

Long-term The third initiative is designed to kick-start new developments that have stalled because of the economic downturn.

“The biggest thing that is stopping development happening is that a lot of builders simply cannot get finance, but if there is a guarantee that the property will sell then the banks will lend,”

Cllr House said.

“The theory is that we will step in with a guaranteed long-term sale value. This means that if the developer builds it we will guarantee to buy it at a fixed and agreed sum in advance. If they then can’t sell it after six months we will buy it and rent it out.”

The proposals were outlined earlier this month at the first meeting of the Hampshire Senate Economic Action Group.

The group of council leaders and chief executives was set up by the controversial Hampshire Senate to see how local authorities could work together to tackle the impact of the recession.

Fareham Borough Council leader Cllr Sean Woodward said: “It’s something we would look at, but obviously we have to ensure that money was not put unduly at risk.

“Given the chronic underfunding of local Government by central Government and the amount of money being poured into banks it is somewhat ironic to then be thinking that councils should be providing the bailout.”

Cllr Royston Smith, Southampton City Council’s cabinet economic development, said: “We are not going to play fast and loose with the taxpayer’s money, but we won’t dismiss a good idea that is going to get the market going again.”

Sue Anderson, a spokesman for the Council of Mortgage Lenders, said anything that could encourage borrowing and lending should be welcomed.

“These kinds of creative approaches from local authorities, dealing with local issues, are really welcome in the current market where things are stalled and slow.”

However, a spokesman for the pressure group the Taxpayer’s Alliance, said the council had no right to take such a risk with taxpayer’s cash.

“The council should not be looking to put more and more money on the taxpayer’s credit card in this way,” she said.

“While it is laudable to try to get the property market going again, it’s not the job of the council.

People pay their council tax to get their bin’s collected – not to underwrite property investments that possibly shouldn’t have been made in the first place.”

Financial experts contacted by the Echo this week warned that the council could risk losing cash if residents fall into debt and default on their repayments.

However, they applauded the council’s forward thinking and said purchasing vacant property could provide a greatly needed stimulus in the construction industry.

Hampshire County Council leader and self-anointed Senate chairman Cllr Ken Thornber did not attend the Senate Economic Action Group meeting and was this week not available for comment.

Elsewhere in the country, councils in Birmingham and Essex are looking at creating their own banks to provide loans to local small businesses.

A similar scheme will today be discussed at the second public meeting of the Hampshire Senate at Test Valley Borough Council in Andover.