A £45 million deal to pay for desperately needed repairs to thousands of council homes is on the brink of collapse.

Brighton and Hove City Council’s solution to a massive maintenance shortfall has been rejected by the Government.

The council planned to transfer almost 500 homes to a private company that it would run itself and use them as collateral to borrow £45 million from banks.

Similar schemes have been used successfully elsewhere in the country but the Department for Communities and Local Government (DCLG) said it was unhappy with Brighton and Hove’s scheme.

It told the council its proposal “does not appear to be deliverable”.

Senior council officials admitted yesterday they were being forced back to the drawing board and warned it would be months before any cash could be secured for work.

Councillor Maria Caulfield, cabinet member for housing, said: “We will be looking at other options. We haven’t come up with anything as a formalised plan as yet.”

The set-back is the latest in a long-running saga about how to get the council’s housing stock up to the Government’s decent homes standard.

In its response to the council the DCLG set out four problem areas, focusing on the uncertainty of the finance for the project, the relationship between the council and the private company and the impact on tenants.

Officials were told the DCLG was willing to consider a re-application.

Coun Caulfied said: “We were disappointed by the response. We hoped to have this in place by April, now we don’t know what will happen. It could be several months.

“Other local authorities have had similar schemes accepted without these problems.”

She said the council was frustrated its financial backing had been questioned and it might try to find a way of setting up an private company without needing DCLG approval. She added that three banks had confirmed an interest in the scheme.

The council has a long-term goal of setting up a new repair contract to save £150 million over 30 years.

In 2007, tenants of the 12,300 council homes in the city voted against a plan to transfer ownership to a private housing association which could have raised funds for the repairs.

The council will be holding meetings with tenants to gather their views on the next step. Some maintenance will be carried out using funds from the council’s budget.

Councillor Gill Mitchell, leader of the opposition Labour group, said she was unhappy with the way communication with tenants was being handled. A letter to residents said the DCLG had recommended holding a new ballot.

Coun Mitchell said: “This is willfully misleading tenants.”