Shamik Dhar and Danny Gabay argue in a report called A Truly Unconventional Monetary Policy for the UK that helping those who are falling behind with mortgage payments is not enough.
The pair, who now both work for economic consultancy, Fathom, say that property acquired by the Government under such a scheme would be bought at a discount of between 10% and 20%, with the former owners able to rent back the accommodation and stay in their homes.
At some point in the future, the Government could sell the property either to the private sector or back to the original owners, their report says.
The authors believe that the plan could underpin the struggling property market and prevent a disorderly fall in house prices that would further destabilise the UK economy.
Given that the Bank of England's base rate is at an all-time low of 1.5%, Dhar suggests that other measures to combat the recession may be needed, including boosting the UK's money supply through quantitative easing (printing more money).
According to Dhar, the beauty of his and Gabay's scheme is that new cash created through quantitative easing would be used to buy the assets that are at the core of the economic downturn.
The Council of Mortgage Lenders estimates that repossessions could rise to 75,000 in 2009 and Fathom is predicting that 375,000 households are likely to be repossessed over the next five years.
