The attempt by local authorities to offer mortgages will fill many homeowners with nostalgia. Tens of thousands of first-time buyers were helped on to the housing ladder by their local authority in the postwar era. Despite their cuddly credentials today, building societies, which controlled the mortgage market until the 1980s, were regimented fiercely when it came to approving mortgages. Borrowers were expected to go cap in hand to the manager and those who had not saved for a deposit on their new home ran the risk of being sent away with a flea in their ear.

In contrast, many local authority mortgages, which were planned as a last resort for borrowers who couldn't secure a loan from a building society, did not require a deposit. In 1969 local authorities lent £85 million, helping about 39,000 people to get a mortgage. This rose to a peak of £636 million in 1975 as building societies suffered what was described in Parliament as a famine of funding. By 1980 about 600,000 people had a local authority home loan.

This success came at a price. Industry insiders suggest that local authorities had more arrears on their loans than building societies. While a slightly higher arrears figure was to be expected, as local authorities lent to higher risk borrowers, the level of arrears suggested that mortgage lending was not their strength.

In 1980 the Government effectively reined in their borrowing in the form of the Housing Act. This decreed that local authorities should charge an uncompetitive “standard national rate of interest” on their loans. The rate today is 6.89 per cent, nearly two percentage points higher than the bank base rate of 5 per cent. Councils now feel that once again they can help borrowers who are struggling to secure a loan in the beleaguered mortgage market. They should be applauded for their willingness to do something, but first they will have to raise cash, either by asking the Government for a loan or by issuing their own bonds. Either way, the scheme will push up public borrowing at a time when the country's finances are already fragile.

If the authorities also show a propensity to run up arrears on their loan books in the way that they did in the 1970s, it will only add to the Government's headache.