Gordon Brown is tomorrow set to unveil a package of measures to help revive the moribund housing market.

The Prime Minister is expected to announce a new era of council housing by helping local authorities to buy repossessed and unsold properties.

There may also be help for first-time buyers with the Treasury considering a new tax-free savings account for those saving for a deposit.

But even before the proposals have been published, they have been criticised as “too little, too late”.

Nick Dawson at Cluttons, the estate agent, said: "I do not expect the Government's supposed rescue plan for the housing market will be nearly radical enough, and will instead attempt to plaster over the cracks while the real solution lies in addressing the wider economic situation.

He said: "First and foremost, the Government needs to accept we are in a recession.

"Half-baked measures to help those facing repossession or boost the tax free savings of first time buyers will not go nearly far enough in halting the decline of the housing market.

"Instead, it needs to tackle the situation in the wider economy, offering tax breaks for businesses, tackling rising living costs and forcing banks and building societies to make lending more affordable."

The Prime Minister is thought to have shelved a more radical proposal under which councils would have been freed to compete as mortgage lenders with access to a pot of £2 billion in Government borrowing. Instead, he is likely to extend a Bank of England guarantee designed to boost confidence among existing lenders.

It is understood that other options to kick-start the housing market, including a stamp duty holiday, are also being held back for further consideration.

The measures will encourage councils and housing associations to offer struggling borrowers financial help in return for a stake in their homes or outright ownership.

The number of council homes has plummeted since 1981 from 6.1 million to 2.5 million. Hundreds of millions of pounds of extra cash earmarked for social housing could now be released early to buy up newly built properties.

It is understood that town halls will also be encouraged to emulate Liverpool’s local authority, which offers first-time buyers help with deposits in return for a small equity stake. Other options, including a stamp duty holiday, are being held back for further consideration.

The scale of the housing crisis was underlined today when the Bank of England reported that the number of mortgages approved for house purchase fell by 71 per cent last month to a record low of 33,000.

Last week, Nationwide reported the biggest drop in house prices since 1990. The UK’s biggest building society said house prices in August fell 1.9 per cent and were now 10.5 per cent lower than the same time last year.

Alistair Darling, the Chancellor, and Caroline Flint, the Housing Minister, have been working for three months on measures to invigorate the mortgage market, particularly for first-time buyers, and to cushion those affected by rising repossession rates.

Up to 300,000 homeowners are already in negative equity. Vince Cable, the Liberal Democrats’ Treasury spokesman, said that this figure could quadruple.

David Orr, chief executive of the National Housing Federation, said that the new mortgage rescue package would be open to those on low incomes, particularly young families.

Gideon Amos, of the Town and Country Planning Association, said that allowing councils to intervene would help the whole market.

It is estimated that 4,000 estate agents have lost their jobs and that this could rise to 10,000 by the end of the year. Even the top end of the market is suffering. Savills said that country homes worth between £1 million and £2 million fell in value by 5.2 per cent in the three months to June.