The Ministry of Housing, Communities and Local Government was not able to immediately confirm at what date the cap would be removed.
The policy was unveiled as one of the key spokes of May’s speech to the Conservative Party conference in Birmingham.
May noted that despite government investments in the Affordable Housing Programme and other initiatives “something is still holding many of them back”.
“There is a government cap on how much they can borrow against their Housing Revenue Account assets to fund new developments,” she said.
“Solving the housing crisis is the biggest domestic policy challenge of our generation. It doesn’t make sense to stop councils from playing their part in solving it.
“So today I can announce that we are scrapping that cap,” she added.
Earlier this week May announced an additional stamp duty surcharge for foreign investors buying property in the UK, while housing secretary James Brokenshire revealed the launch of a New Homes Ombudsman and residential permitted development rights.
Help SME builders
The House Builders Association, part of the National Federation of Builders (NFB), said it had been targeting the cap on what councils can borrow in all of its past manifestoes.
It said that lifting councils’ house building cap “will now help small and medium-sized (SME) builders and councils to work together to deliver the governments’ target of delivering 300,000 homes a year”.
NFB chief executive Richard Beresford congratulated the prime minister for “recognising a substantial barrier preventing the government from meeting its target to build 300,000 new homes a year”.
“Lifting the borrowing cap for councils will diversify the housing market, stimulate industry capacity and help councils more easily meet their affordable homes requirements,” he said.
“The entire housing supply chain should be very proud of their collective campaigning on this issue.”