§ Order for Second Reading read.
§ 3.32 p.m.
§ The Chancellor of the Exchequer (Sir John Simon)
I beg to move, "That the Bill be now read a Second time."
On 21st February I informed the House that, in the opinion of the Government, legislation was desirable to deal with some aspects of the law relating to building societies. I promised that a Bill, in course of preparation, should soon be introduced. Hon. Members will see from the long Title of the Bill of which I now move the Second Reading, that the object of the Bill is to declare and amend the law as to the making of advances by building societies and as to some other building society purposes. It may be convenient if I remind the House that building society funds are derived from two sources. The main source is what, I think, is called their share capital. It is investments in the society made by members in the form of the taking of shares which, of course, carry a rate of interest. The other source of the funds is the deposits made with the building societies and on which, of course again, interest is earned and paid.
The figures at this time of day are very large. I believe that the share capital of building societies amounts to something like £550,000,000 and the deposits to another £150,000,000. The funds thus received by building societies are, as the House knows, lent on house property on mortgage, and that is a very important method by which the purchasing of houses is effected. The building society movement is an old one, but it has attained since the War enormous dimensions. It undoubtedly has made an immense contribution to the vast expansion of house building which has been a principal factor of our emergence from the severe trade depression which followed the War. Indeed, the general growth of building society business which has accompanied that expansion in house building is a very remarkable thing. I will give one or two more figures to the House.
Before and up to the Great War, building societies were mostly local organisations and, for the most part, were not of 370 very great size. Like the co-operative societies they go back in their origins I think to the Friendly Societies Act. They obtained separate recognition, first in the Building Societies Act, 1836, now over a. century ago, and later on in the existing statutory code, the Building Societies Acts, 1874 and 1894. Up to 1918, the assets of the building societies amounted to some £68,000,000; 10 years later, at the end of 1928, they amounted to £268,000,000. At the end of 1937, which is the last year for which I have figures, the assets had increased to £710,000,000. While, on the one hand, that indicates an immensely increased investment in building societies by all sorts and conditions of people, on the other hand the business of advancing money for the purposes of assisting the purchase of dwelling houses has also grown proportionately and at a great rate. I will again give three figures. They are not for exactly the same year because I do not happen to have them for the same year.
In 1913, the amount advanced by building societies was just over £9,000,000. I do not mean the amount that was already advanced and not yet repaid, but further advances actually made in the calendar year 1913. In 1929, the figure was £75,000,000 and in 1937 it was nearly £137,000,000. Fresh advances made within the 12 months amounted to £137,000,000. As regards the statutory provision which governs this immense organisation and its work, the last Building Society Act was passed as long ago as 1894. This immense growth which I have indicated has very largely taken place since then, and it is creditable to the movement that it has not called for more constant legislative interference; but it is now necessary to enact amending legislation as to the law governing building society advances.
The existing law provides very clearly that building societies may advance money lent by borrowers on security of real and leasehold property. That is stated in Section 13 in the Act of 1874. In a recent case, the question was raised whether building societies had the legal power to make any larger advances than they would have made on the security of property, real property, and whether they could advance an additional further loan in consideration of some additional security given to them. There was much debate 371 in a case which attracted attention in all quarters where these things are discussed, and in which the litigant, who was a litigant in person, conducted her case, I understand, with all the assiduity—and at considerable length—of a modern Portia. On the view which the learned judge took of the facts of the case—it was a very long time before he was able finally to say what should be done—this particular question did not really need to be decided. He decided it on special facts which disposed of the dispute between the parties. But, in the course of his judgment, the learned judge expressed the view that a building society had such powers, that is to say, that it is within the power of the building society, the judge thought, not only to lend money on the security of house property—which nobody doubts—but also in a given case, if it thinks fit, to lend additional money, beyond what it would have lent on the security of the house, if an additional security is offered to it in return.
I must say I find it difficult to think that Parliament could take any other view, because Parliament has more than once passed legislation which seems to assume that to be the case. There has been a whole series of Housing Acts since 1923 which have given to local authorities the express power to give this additional security to building societies in the form of a guarantee in consideration of the building societies making advances exceeding the sums which they would normally lend without any such additional security. Indeed, Parliament has gone further, because in the Housing (Financial Provisions) Act, 1933, there is a provision that the Exchequer undertakes to reimburse the local authority up to half the loss that might be sustained if the local authority gave such a guarantee to a building society in order to induce the building society to lend extra money. Clearly, therefore, Parliament has taken the view that there is nothing improper in building societies making larger advances on additional security.
The view which I submit to the House, and which, I think, will be very commonly shared, because it was expressed by the hon. Lady the Member for Jarrow (Miss Wilkinson), who introduced a Bill with this object herself—and I should like to express to her my regret that the pre- 372 sent Bill should in any way have got in her way—is that it is not a bad thing, but a good thing, that additional money should be lent to the man who wants to buy a house through a building society. But the hon. Lady rightly insisted that, if that power is to be given, some conditions ought to be attached to it, so as to secure that it shall not be abused or misunderstood. The question, therefore, arises whether the present law does not need to be amended so as to lay down what the conditions shall be when this additional security is taken, and that is the main object of the present Bill. I wish to repeat, for purposes of clearness—because, although the subject touches an immense number of people, it is a little technical—that it is a good thing that building societies should be allowed to lend to a borrower, for the purpose of buying a house, more money, on additional security, than a mere mortgage on the house would provide, but that conditions should be laid down to protect the purchaser from misunderstanding the position. Conditions and limitations are needed within which this arrangement, which usually takes the form of what is called a "builders' pool," should be permitted in the future.
There are one or two things for which the Bill provides, and I will point out how it provides for them. First of all, if there is to be a security over and above the security of the house itself, whether it be leasehold or real property, it is desirable that there should be some statutory list of the kind of securities permitted, and, if hon. Members will look at the first part of the Schedule, which itself is referred to in Clause 2, they will see there a list of the various classes of additional security. One quite common case, I believe, is this: An individual wishes to borrow from a building society so as to be able to buy his house. If all that he was permitted to do was to borrow on the security of the house, probably he would not be lent more than 75 percent. of the value or purchase price. That would put too big a burden on a great many people, and especially on people of humble means. To take an ordinary case, if a person wanted to buy a house at £1,000, and he borrowed £750 in the ordinary course from a building society, that would still leave £250 to be found by him, and he might not be able to raise that amount of money himself. A very common way 373 in which the gap is narrowed is by the provision of an indemnity policy from an insurance company, a premium being paid in return for which the insurance company will undertake to be responsible, if necessary, for the additional advance. But a form of arrangement which has come into prominence, and is now very common, is the arrangement which is rather mysteriously called a "builders' pool."
I ought, perhaps, to attempt to give a short account of what is essentially involved in the "builders' pool." Let us assume that a builder is erecting a number of houses on an estate, all more or less alike, with a show house at the corner in the usual way. He may make an arrangement of this kind, which will undoubtedly facilitate the purchase of those houses by people who want to buy them. Suppose that each house is to be sold for £1,000, and suppose that the building society, in ordinary circumstances, would be prepared to advance to the purchaser £750, leaving, therefore, £250 to be provided by one means or another by the purchaser. The builder may have what this Bill calls a continuing arrangement with a building society, as a result of which the building society will be prepared to advance, not £750, but, let us say, £950, thereby leaving the purchaser to find only £50. The higher advance is possible because under this arrangement the builder guarantees the society against loss—so long, of course, as the guarantee is in force—and he deposits, in support of his guarantee, an amount in cash which may be in the ratio of one-third of the amount of the extra advance. The purchaser himself, therefore, will only have to find 5 per cent. of the total purchase price. The rest of the purchase price will be provided, as to £750 by a mortgage on the house to the building society, and as to £200 by the extra advance which the building society makes, and in respect of which the building society is covered by this "builders' pool" or continuing arrangement. There is essentially, of course, a consolidation of the builders' deposits into a pool, because the money provided by the builders' pool is not security for one particular house, but for the whole series as the process of selling the houses proceeds.
I do not feel any doubt that that system, if fairly and properly worked, is to the advantage of all parties. It is undoubtedly to the advantage of people 374 who buy houses, some of whom would otherwise not be able to do so, and it greatly lessens the burden that they would otherwise have to carry. It is an arrangement which has helped the builder in disposing of his houses, and it is also an arrangement, when it is properly worked, by which the building societies have gained, because they get increased business, and they find themselves adequately covered by the builders' pool. We felt, however, that it was necessary to find out what were the weaknesses in this system and whether it was necessary to introduce a Bill of a regulating character. The House will find in Part 2 of the Schedule a definition of what is called the continuing arrangement, and the conditions which must be fulfilled by a continuing arrangement. We call it a continuing arrangement, rather than a builders' pool, because there are many cases where such an arrangement is provided not by a builder but by somebody else. Some employer may assist his own workpeople to acquire houses in the area where they work, by himself offering the guarantee. We must distinguish the advances made by local authorities in many cases, with, I am sure, a good deal of public spirit, when the Exchequer protects them to a certain extent if they make them.
What is the nature of the objection raised to this arrangement? It is this. The borrower, the individual who has been raising money to buy a house, may not know about the builders' pool. There is not necessarily anything wrong with that situation, but he may not know in fact. It is very much the business of the House of Commons to remember that a great many people who acquire houses are without much business knowledge and are not too well qualified to sign documents, and they suppose that if the building society is prepared to advance as much as £900 or £950, that is all on the security of the house. A borrower may be led in that way to suppose that the house which he got very cheaply was a very valuable house. Therefore, where there is a continuing arrangement of any kind, by which the borrower is able to get any more than what the building society is prepared to lend on the house, he ought to know the facts.
Where there is a composite loan made up of two parts, one portion being on the security of the house and the second portion being what is called in the Bill 375 the excess advance, which make up the whole amount, the borrower ought to know. That will save him from misunderstanding. He should know that the basic advance is so much and the excess advance is so much more. In order that that may be carried out, we have provided in the Bill that where a building society is taking part in a continuing arrangement the total advance shall not exceed 95 per cent. of the purchase price, the basic advance shall not exceed 75 per cent., and the excess advance shall not exceed 20 per cent. In Clause 3 it is provided that there shall bea notice in writing in the prescribed form.We shall prescribe a form, and this must be given to the borrower to inform him of the composite character of the advance. I think that that is, in principle, a proper arrangement. We may discuss the details more in Committee, but I think there will be agreement on the principle.
§ Mr. A. V. Alexander
We all agree in principle with that, but would it not be better to include in the actual deed such particulars, including particulars of the collateral security?
§ Sir J. Simon
That may be a very useful suggestion; I will bear it in mind. But, for the moment, we are dealing with the Bill as printed. The right hon. Gentleman's suggestion, though important, is a matter of detail. It is also very necessary that the continuing security should be adequate for the additional risk which it is designed to cover. These building societies are entrusted with the money of a number of small depositors. It is our duty to see that their interests are fairly protected, and if there be any risk of a building society lending recklessly and not being properly covered we ought not to pass that over, because that would mean that we should be permitting what might be a very grave injury to the people who had deposited their money with the building societies—in many cases, all the money they have available. Everybody who is familiar with the history of these matters knows of cases where collapses have brought suffering to thousands of small depositors.
The hon. Lady opposite, and other hon. Members, the other day suggested that we should go further. The question arises, could you do what she in her Bill 376 suggested? When the building society lends money to an individual to buy a house, could you put on the building society an obligation to guarantee to the borrower, for example, that the house was built in accordance with the local by-laws, that the house was well and solidly built, and that the price for which it was being sold was a reasonable price? I perfectly understand the feeling which leads to that suggestion being made. It is true that a great many people who borrow money on houses are not as familiar with the way that this business is worked as we may all be on a Second Reading of this Bill. Although I have familiarised myself with these matters in connection with this Bill, I should have been sorry to be asked a question about these things without notice, as if they were things that everyone knew. It has been suggested, as the hon. Lady suggested, that a building society should be treated as giving a warranty, a guarantee, to the borrower that the house has been well built, that the construction complies with the local by-laws, in any case where the society takes security in addition to the mortgage of the house. I do not think it is suggested that such a guarantee should be given in the ordinary case of a mortgage, but only in cases where there was an additional guarantee, a continuing arrangement.
I have looked at the matter with every desire to form a clear judgment, and I do not think that that is a practicable proposal, and I will state why. For one thing building societies constantly make such advances in respect of houses that already belong to the borrower or which the borrower has already contracted to buy. A man may live in his own house for years and then have some reason to want to borrow from a building society on mortgage. There may be many other cases in which the business conducted with a society is not previous to the buying of a house. It would, of course, be quite unreasonable and absurd to make the lender guarantee the good construction of the house in cases like that, because the house has already been bought and lived in. Again, the additional security is not always a builders' pool. It may be an assurance policy or a number of things which axe now put into the Schedule, and the proposal would in such a case have no relation to security provided by the builder.
377 The idea is that if the builder helps to sell his house by providing for the protection of the building society, somehow or other there ought to be a warranty which will secure that the house is a satisfactory one. I think that on analysis many people will feel that it really is not an appropriate suggestion. The building society is the lender and the person getting the house is the borrower. I do not see how you could possibly establish, as between the lender and the borrower, a warranty which may be appropriate as between a seller and a purchaser. Let me give an illustration. It would surely be quite impossible to provide that a pawnbroker when he lends you a certain sum of money on your watch guarantees that the watch is made of gold. Yet that is really what is involved if it is suggested that the society in lending money on a security is thereby undertaking to the borrower to guarantee the condition of the article. I think it will be found that these questions can arise only between seller and purchaser. It is a consideration of a very practical kind. If societies were to have put on them this particular obligation to give a warranty as regard houses which they have not built and which in a great many cases they may not even have seen until after they were built, it is plain that they would have to set up staffs of men to superintend the actual building of the houses, and the terms of the loan would have to be more onerous to the borrower to cover this expense. I submit that the provisions which we have in the Bill will be of value, but that the suggestion in the hon. Lady's Bill is one which we cannot adopt.
There are two provisions of the Bill to which I will now draw attention. First of all I ask hon. Members to look at Clause 4. Let us remember what it is which we ought at any rate to provide against. We should provide against a borrower being misled; he should not be left in a position where he can say, "I thought, because the building society was advancing me so much, that it was proof that the house had such and such a value." The Clause provides that:Where a society makes to a member an advance for the purpose of its being used in defraying the purchase price of freehold or leasehold estate, the society shall be deemed to warrant to the member that the purchase price is reasonable unless before any contract requiring the member to repay the advance is entered into the society gives to the member 378 a notice in writing stating that the making of the advance implies no such warranty.There must be cases in which a society would not be inclined to lend on the terms of a warranty as to the value of the house, and these may very well be cases where the borrower is anxious to borrow. The main thing we have to do is to make sure that the borrower is not misled. I, therefore, wish to provide that there shall be implied a warranty that the price is reasonable, unless the society makes it clear that it is not offering anything at all of that sort.
The other Clause to which I would draw attention is Clause 7. I want to be quite plain with the House. The Clause operates primarily as a protection to the investor of his money in the building society's funds. It is primarily intended to secure him from what might be a serious risk. He has deposited money with the society, and it is a protection to him when the clause provides that:The duties of every director or member of the committee of management of a society shall include the duty of satisfying himself that the arrangements made for assessing the adequacy of the security to be taken in respect of advances to be made by the society are such as may reasonably be expected to ensure that the adequacy of any security to be so taken will be assessed by a competent and prudent person, experienced in the matters relevant to the determination of the value of that security.Some of the societies, I am sure, take most elaborate precautions to this effect already, and they do so in the interests of the society and of its members. Nothing could be worse than to lend sums in excess of those which could be prudently lent on property.
§ Mr. Alexander
Why not say straightaway in the Clause that it should be a qualified architect and surveyor who should inspect the property and not "every director or member of the committee of management of a society?"
§ Sir J. Simon
We will discuss that point when we come to the Clause in Committee. There is good reason for putting the Clause in this form. The principle of the Clause is that it should be an obligation on those who are directors or members of the committee of management of a society to satisfy themselves that the arrangements made are arrangements which ought to be reasonably adequate to secure that the valuation is properly and skilfully made. While that is pri- 379 marily a protection of the depositor and member of the society, in fact it operates also to protect the position of the borrower. We go on to provide, as in the Companies Act, that it shall not be possible for a director or member of the managing body to get out of his liability by pointing to regulations or a clause in the contract or anything of that kind. The jerrybuilt house will not on that basis qualify for anything but a very moderate advance, and will therefore not be too easy to sell, and the person who is engaged in buying it will know that he is buying a house on which the society is not prepared to advance as much as he expected.
This is not an interesting subject, but it is a very important one, and I hope that the House will excuse my explanation at such length. I will sum up in this way the object we have in view.
§ Sir J. Simon
Certainly. Let us consider exactly what is the scope of it. It is rather a difficult Clause. The idea was this: That there may be circumstances in which it is important to guard against the danger of a society and a builder operating in league with one another. [HON. MEMBERS: "They often do."] That must be undesirable from the borrower's point of view, and it may tend to make the society lend more than it ought to lend as a matter of business. It is bad, too, from the point of view of the depositor in the building society. We therefore thought it desirable to put in a Clause of this sort. I believe that by the existing practice of the building societies a sort of line is drawn across England from East to West. North of that line commissions are not paid for the introduction of mortgage business, but South of that line a different practice prevails. There may be cases in which the payment of commission for introducing business is perfectly right as appropriate remuneration, but the object of the Clause is to devise terms which would secure that there was not that undesirable temptation to associate the interests of the two parties. One way of doing that would be to prohibit the payment of a commission which would act as a link between the two.
§ Mr. Alexander
It is necessary to consider this point before we reach the Committee stage. We are entirely in agreement with the principle that has been enunciated, but a large number of building societies up and down the country actually employ, as building society representatives, professional estate agents, and those agents may at the same time be actually acting in some cases on behalf of the vendors. We must get a clear idea as to what the Government intend in this Clause.
§ Sir J. Simon
I am grateful to the right hon. Gentleman for raising the point. He has mentioned the very class of case which has been called to my attention. It is quite true, as he says, that in some parts of the country that very commonly happens. A building society has its headquarters somewhere or other and may have business to transact all over the Kingdom. It cannot have a special member of its staff in every Provincial town throughout the country, but is bound to rely upon the services of some skilled persons in the locality, maybe a solicitor or an estate agent, and I think myself we shall have to make, in Clause 6, some proper provision which will cover that case. None of us wants to stop the proper working of a most important business, but we do want to prevent the paying of commissions in cases which would only lead to undesirable secret co-operation between a builder not of the first-class and a building society which might be prepared to lend the money
We might claim that this Bill has, perhaps, four or five general objects, and I will define them. We are, in this Bill, careful to define what are the types of additional security which may be accepted by a building society. We suggest that it is right to define what they are and at the same time to secure that the builders' pool, which is a very common type, should be a sound and adequate security for the purpose. Secondly—and this refers to Clause 6—our object in this Clause, and I think it will have to be very narrowly scrutinised, is to secure as far as we may that the role of the builder who has a house to sell, and the building society which has money to lend, should be kept distinct. That is what we have in mind in Clause 6. I think it is a good object, though we may not have expressed it quite as we should have done. Thirdly, 381 we want to provide that the building societies' arrangements for the survey, and the assessment of the value of the security are proper and adequate and provide for skilled advice.
Fourthly—and I think this is the point which the hon. Lady the Member for Jarrow had very specially in mind in her Bill—we must provide that the purchaser who goes to the building society to borrow money must not be left exposed to the risk of misconceiving or misunderstanding the nature of the transaction into which he is entering, or the parts played in it by the builder and the building society respectively. He should not be led to think that in the circumstances there is any further warranty than there really is. Lastly, if the borrower falls into arrears—I mention this point because it is in the Bill—and the building society decides to foreclose and sell the property, as a mortgagee would be entitled to do, we want to provide that it should sell the property for the best price that can reasonably be obtained in the circumstances. If it does not, it may very well be doing an injury to the borrower, who, although a defaulting borrower, is still a borrower with rights, and ought to have any advantage that can be got from the full price being obtained when the property is sold.
These are the objects of the Bill, and I hope that the House will feel that a Bill on these lines is one which should be enacted. When we come to later stages I can quite see that there will be some difficulties and fine points with which to deal, but I hope we may do that in a cooperative spirit, because I am sure that our general object is the same. It is not to injure the building society movement, but to see that this enormous enterprise, which plays such a big part in helping to increase the number of houses in the country, should so operate as to be for the public advantage, the reasonable protection of the borrower and to the general advantage of the State.
§ 4.20 p.m.
§ Mr. Arthur Henderson
I beg to move, to leave out from the word "That," to the end of the Question, and to add instead thereof:whilst recognising the necessity for an amendment of the law relating to the operations of building societies, this House regrets that the legislation proposed contains no pro- 382 visions for the greater protection of occupying owners against the erection and sale of houses below a satisfactory standard of construction.Whatever differences of opinion may exist on the more controversial issues which have been raised by recent litigation there will, I think, be general agreement that legislation to amend and clarify the law relating to building societies is long overdue. The Chancellor told the House that for more than 100 years the activities of building societies have been regulated by Act of Parliament, and he also stated that the last Act dates back to 1894 at a time when the capital assets of building societies in this country amounted to, roughly, £40,000,000, as against a total to-day of approximately £700,000,000. In addition, I am informed that more than 4,400,000 shareholders, depositors, and borrowers are associated with building society activities, including more than 1,300,000 borrowers. This enormous development, as the Chancellor stated, has taken place during the post-war years and indicates clearly the nature and magnitude of present day building society operations, and justifies the view that existing building society legislation needs to be drastically overhauled and amended.
This development in building society business in post-war years has been accompanied by a method which, I understand, was not in operation before the War and to which the Chancellor referred, namely, the method of taking additional collateral security. As I understand it, the case for the building societies, when they seek to justify this method, is that it has enabled them to advance money in excess of the normal percentage of property valuation and that, as a direct consequence of this modern technique, hundreds of thousands of families are today enjoying house ownership which would not otherwise have been possible. It was this practice which was challenged in the recent case in the High Court by Mrs. Borders, and, as the Chancellor again indicated, the judge held that the acceptance of collateral security was within the statutory powers of building societies. I believe it is the fact that some building societies, at any rate, have been criticised for making these arrangements with house builders on an excessive scale and on far too liberal a basis. This abuse appears to have been recognised some years ago because a code of ethics and 383 practice was adopted by most of the building societies in the country, the object of the code being to limit the facilities afforded by building societies to house-builders within the bounds of prudence. It is only fair to say that the vast majority of building societies have not only adopted, but have observed in practice this particular code.
The Bill which the House is discussing this afternoon seeks to give statutory effect to the main provisions of the building society code, and should, at any rate, bring the backward societies into line with the more responsible societies. That is in the interests of the building societies as a whole as well as the prospective house purchaser. Clause 2 only allows additional security to be taken by a building society if it is a security of the authorised class. As the Chancellor explained, these classes are specified in Part I of the Schedule, and I believe that I am again correct in saying that the majority of the building societies have carried out this particular provision, because it is already included in the building societies' code. Whether this be so or not, the taking of collateral security by building societies in future will be subjected to the definite restrictions set out in Clause 2, and in the Schedule to the Bill; and, in particular, the restrictions contained in Part II of the Schedule should ensure that the building pool arrangements between building societies and builders are put upon a proper basis. I should like to draw the attention of the Chancellor to the provision in regard to this additional security. On page 9 of the Bill it is provided that one of the classes of additional security is:A guarantee given by an assurance company.If the House will turn to Clause 9—the Interpretation Clause—it will be seen that'Assurance company' means an assurance company within the meaning of the Assurance Companies Act, 1909.This, on the face of it at any rate, would give power to exclude a friendly society which carries on insurance business. As the Chancellor knows perfectly well, the Assurance Act, 1909, excludes friendly societies. Why should not the insurance policy of a friendly society be as good collateral security as the policy of the insurance company, more especially when 384 we remember that in the case of the friendly societies it is carried on, not for the purpose of making profit, but on a mutual basis, whereas the average insurance company is a typical example of the desire to make profit. I believe that representations have been made or are to be made to the Chancellor by representatives of the friendly societies of the country, and I hope that it will be possible for him, or for whoever winds up the Debate, to give the House an assurance that there will be no differentiation between assurance companies and friendly societies.
Clause 3, which requires notice to be given to the borrower where security has been taken by the building society from a third party, is also to be welcomed. Here, again, I understand that it is the practice of the majority of building societies to give such notice, but in many cases, I am informed, it is not so given. There are many people who consider that this constitutes the suppression of a fact which should be brought to the knowledge of the prospective borrower. Clause 3, therefore, will make this requirement to give notice obligatory upon all building societies. Clause 4, the warranty Clause, should help to prevent or discourage overcharging by builders, and perhaps also cause building societies to exercise greater care when they are about to advance money on a house. Clause 5, which imposes the duty on societies to take reasonable care to sell a house in connection with which there has been a default, at the best price obtainable, is also to be welcomed. As my hon. Friend the Member for Jarrow (Miss Wilkinson) said a little time ago, suspicion does definitely exist in the minds of many people that some societies sell at less than the full market value to rings or other people. No doubt in most cases that is not so, but this provision in the Bill should do something to reassure the public when sales take place following default.
I would ask the House to turn to Clause 7, which deals with the valuation of securities. As I understand it, under this Clause the obligation is imposed upon a director or a member of the committee of management of a building society. I should have thought that was far from being satisfactory. I do not wish to cast aspersions on the directors of building societies or on their capabilities—I have 385 no doubt that many of them are very able men—but whether they are qualified to undertake the obligation imposed upon them by Clause 7 I very much doubt. I would suggest to the Chancellor of the Exchequer that he should consider amending Clause 7 to provide that this obligation should be undertaken by a professional valuer and not left to some amateur director of a building society.
Although this Bill is to be welcomed, and is welcomed, by hon. Members on this side of the House—
§ Mr. Henderson
As far as it goes. Perhaps I ought to say, by the majority of Members on this side of the House for whom I speak. The Bill, however, leaves a vital problem almost untouched, and that is the protection of the house purchaser. This is a very important problem. I understand up to last year there were 1,250,000 borrowers who, presumably, had borrowed in order to purchase their homes. That number is apart altogether from the fact that there are hundreds of cases in which houses are purchased without any recourse to building societies. It has been said that the Englishman's home is his castle. Whether that be so or not, it is certainly the place where he and his family have to spend most of their lives. This country has always been proud of its home life, and that surely necessitates a sound standard of building, enabling good and decent houses to be provided.
An authority on house building recently calculated that not more than 1 per cent. of the 4,000,000 houses which have been constructed since the War could fairly come in the category of jerrybuilding. The number of jerrybuilt houses, whatever it may be, makes very little difference, at any rate to those families who have to live in them, but to the extent that the jerrybuilt house exists, I suggest that a vital social problem has been created. It is essential in the interests of the community that both the tenant and the purchaser should be protected from the antisocial activities of the jerrybuilders. What is the solution? I would first suggest that the primary obligation in regard to shoddy house building lies with the housebuilder. House-building is his profession, his metier, he is an expert, or should be an expert, and there is, therefore, a far greater obligation imposed upon him to 386 ensure that decent houses are constructed. Unfortunately, there are members of that industry who cannot be trusted, and many of them avoid their responsibilities through the medium of bankruptcy.
Then there is the local authority. Much can be done by local authorities to secure a good standard of house building in their district. At present their duties of inspection relate only to such matters as concrete foundations, thickness of walls, drainage and sanitation. I am informed, but I do not know whether the information is correct, that their inspectors have no control over joinery, plastering, paintwork, and so on, however inferior the work may be. If that be so, I would suggest—I am glad that the Minister of Health is present—that their powers should be strengthened by means of amended bylaws. Would it not be possible for the Minister of Health to draft new model by-laws strengthening the powers of local authorities to improve and maintain a higher standard of house building? In addition, much could be done if there was a levelling up among local authorities to the standard of the most advanced and the most rigorous authorities.
I do not think that building societies themselves can escape a share of the responsibility, more especially when they are associated with building pools. The difficulty with them, apparently, lies in the fact that in many cases societies do not make contact with the prospective purchaser until after the house has been constructed. If that be so, it seems to me that there is a greater responsibility imposed upon the building societies to satisfy themselves when they make an advance that the condition of the house is satisfactory. Many building societies, apparently, require to be satisfied that a certificate of good value has been secured from the National House Builders' Registration Council. I believe that, in spite of the criticisms which have been made against the work of this council, it has carried on and is carrying on a really constructive work. Would it not be possible to provide that this certificate should be essential before a building society makes an advance? Apparently, this certificate is given only when the house has been inspected both during construction and on completion. With the certificate of good value there is appended a guarantee of the builder of the house to make good 387 any defects that appear within a period of two years, due to non-compliance with the primary specification laid down by the council. This would mean that an effective safeguard against shoddy building would be secured, especially if building societies were only permitted to make an advance to a prospective purchaser of a house in respect of which a certificate of good value has been secured from the Registration Council. The securing of this certificate would be the joint responsibility of the builder and the building society.
There is another method which might be adopted, and that is a wider operation of the powers conferred upon local authorities by the Small Dwellings (Acquisition) Act. This Act, which permits local authorities to make advances up to 90 per cent. of the value of the house, is to-day operated by a number of local authorities, but I believe I am right in saying that a much greater number do not take full advantage of the powers conferred upon them by this particular Act.
Hon. Members on these Benches, whilst not proposing to oppose the Bill, realise that the vital problem of safeguarding the house purchaser still remains, in spite of the useful provisions which we think are to be found in the Bill. I, therefore, on behalf of the majority of my hon. and right hon. Friends, desire to move the Amendment.
§ 4.43 p.m.
§ Mr. Holmes
I think this is the first occasion on which the hon. and learned Member for Kingswinford (Mr. A. Henderson) has addressed the House as the first spokesman of his party on a Government Bill, and I think the House would like to congratulate him on having been given that honour. We might call it the maiden speech of a potential Cabinet Minister. The speech was clearly argued, fairly put, and happily phrased, and we all hope that the hon. and learned Member will continue to follow in the footsteps of his father.
In view of the fact that there has been a tendency in certain quarters recently to disparage the work of building societies, it would appear desirable on an occasion like this to remind ourselves of the history of the building society movement and the manner in which the individual 388 societies have been conducted. The Chancellor of the Exchequer and the hon. and learned Member both referred to the Acts of Parliament which have been passed in connection with building societies. There really have only been three of importance. The first was passed 103 years ago, in 1836. It is an Act which still remains on the Statute Book and applies only to about 30 unincorporated societies. The next important Act was passed in 1874. It was introduced by a Member of this House, Mr. W. T. McCullagh Torrens, who was the President of the Building Societies Protection Association, which was the forerunner of the present Building Societies Association. It was not a Government Bill although it was founded on the report of a Royal Commission.
Then came the Bill of 1894 which followed the failure of the Liberator Building Society. The House in 1893 appointed a Select Committee and the Government Bill based on its findings was introduced and passed in 1894. For the last 45 years there has been no material alteration in the law governing building societies, and. as the Chancellor of the Exchequer said in his speech, it is a fact which is very creditable to the movement. It is, however, only natural that the amazing growth in building society business, particularly since the end of the Great War, should make it desirable that alterations should be made in the law to give statutory force to arrangements which have proved satisfactory to societies and borrowers alike; to remove elements which might involve risk if pursued to imprudent lengths and, generally, to make provision to protect building societies, their members and their clients.
I now turn to the nature and scope of building societies' work. Most of the original building societies were formed in connection with churches and chapels, and gave an opportunity to their members of investing their shillings and pounds out of the money they could save, and to others the opportunity of borrowing for the purpose of purchasing their own home. Although the extent of the building society movement has grown enormously, the nature and scope of its work remain the same. It continues to be this two-way social service. It should, therefore, be emphasised that building societies are not money-making machines owned by a few wealthy capitalists, but are democratic 389 bodies entrusted with the savings of 3,000,000 investors drawn from the working and middle classes. They work on as narrow a margin as possible in order to lend money at the lowest rate compatible with offering a modest return to the investors. The latter have the advantage of being able to withdraw their money in full on giving the prescribed notice, very often on demand, and do not run the risk of capital depreciation as is the case of holders of stocks and shares.
Since the War, building societies have materially contributed to a solution of the housing problem. During the past 20 years they have lent over £1,500,000,000 to persons desirous of purchasing their own homes. Official figures are not available after 31st December, 1937, but on that date the number of persons who were purchasing a house through building societies was 1,381,699. At that date, also, the total assets of building societies were £710,053,457. It can be rightly claimed that these mutual bodies, working under Government control, have during the past 100 years, and particularly in the last 20 years, made a great contribution to our national well-being by encouraging thrift and home-ownership. Therefore, it behoves anybody who is inclined to disparage the work of building societies to remember that the £700,000,000 which they hold are the savings of working and middle class people, and that through holding that money they are enabling 1,400,000 people to buy their own homes. I have mentioned that at the date of the last official return the assets of building societies were £710,000,000. Most of this is held by 219 building societies who are members of the Building Societies Association, which drew up the code of ethics and and practice referred to by the hon. and learned Member. I am asked by this association of building societies to say that it warmly supports the principles contained in the Bill, the whole tenor of which is in the direction of applying the best standards of building society practice to all societies.
May I mention a matter referred to by the hon. and learned Member? The Bill does not amend the existing obligation on the purchaser to satisfy himself of the soundness of any house he buys; the doctrine of caveat emptor still holds good. Attempts have recently been made to place on building societies at least a moral re- 390 sponsibility in regard to the standard of construction. Building societies feel strongly that their position is only that of any other lender of money and that they cannot accept any responsibility to purchasers for the quality of building. At the same time, they do not desire to take up a narrow or a mere legal attitude, and will be willing to play their part in any practical scheme, which commands general support, of an adequate standard of building. The hon. and learned Member referred feelingly and rightly to the jerry-builder. I can assure him on behalf of building societies that the words which I have just used are truly said, and that they will be only too glad to give their support to any scheme for an adequate standard of building which will apply to everybody. They will, of course, expect that a similar obligation will be placed on insurance companies and on mortgage institutions which increasingly compete with building societies in a sphere which is peculiarly their own. As regards the matter just referred to, building societies feel that a considerable concession is being made by their agreement to Clause 4, which provides that a building society shall be deemed to warrant to every borrower that the purchase price is reasonable unless it gives notice before the mortgage is signed that the making of the advance implies no such warranty.
We are all aware that the Chancellor of the Exchequer, during the past few months, has been very occupied in taking his part in the consideration of international affairs, and that to-day he must be fully occupied in preparing to introduce to this House one of the most momentous Budgets which it has ever had to consider. It is, therefore, greatly appreciated that he should come here to-day himself and introduce this Bill and make the Government speech in favour of it. I hope this will be recognised as the feeling of the Government that nothing must be done to disparage and spoil the value of the social service which building societies have been able to give to working people and to the middle class people of this country for many years. I hope the House will accept the Bill in that spirit and will give it a Second Reading.
§ 4.54 p.m.
§ Miss Wilkinson
I am sorry to be the ghost at this feast, but I do not think the Bill a good Bill. Indeed, I think it is 391 the result of a ramp that has become intolerable, and that the Bill is a piece of very one-sided legislation. While the Chancellor of the Exchequer was speaking I could not help feeling that if ever I was charged with committing a murder I could not wish for anything better than that he should not only prove to the world my innocence but should also prove that no murder had ever taken place. That is what the speech of the Chancellor of the Exchequer amounted to; it did not touch the real deep-seated grievance which is connected with this matter. I do not accept the Bill. I feel, after consultation with many house-purchasing associations, that there are tens of thousands of small house purchasers who will not regard the Bill as in any sense satisfactory. If, as the Chancellor of the Exchequer has said, this is the first piece of legislation on the subject since 1894, it is extremely unfortunate that it should be so one-sided. I have used the word "ramp." It may be regarded as being rather strong, although I consider it to be an under-statement of the case. We have building societies doing something which they are not quite sure is right, and which has been admitted by the Chancellor of the Exchequer to be just on the edge of the law. Mr. Justice Bennett took a long time before he came to his decision. Indeed, so doubtful were they about the legality of collateral that they took great care to keep it very secret from the purchaser.
The Chancellor has spoken to-day as though everybody knew about collateral security. I say that very few people knew anything about it except those who were immediately concerned. I have been surprised at the large number of letters I have received, many from professional men who ought to have known but did not until they found out how they stood afterwards. The Bill, in effect, is brought forward to legalise retrospectively the taking of collateral security, because nobody quite knew whether it is legal or not. If it is legal, there is no need for the Bill. The Measure also makes two handsome presents to building societies, and I submit that in return it gives no real protection to the victim. I agree with the Chancellor of the Exchequer—he quoted almost my words—that the objection is not to the fact that collateral security is being taken but to the way it 392 has been used and to the fact that it is kept secret. It may not be the case as regards most of the substantial societies, but there are some societies in which it has amounted to something like a deliberate swindle of the small purchaser. The small man has been induced to believe that he was getting value for money. He is asked to pay in every case a surveyor's fee for the report to the building society, and the amount of money advanced by the society depends on that report. He knows nothing about collateral security, but he is not allowed to see that report, in connection with which he has paid a surveyor's fee of two guineas or three guineas. I have in my possession a copy of a letter from the National Building Society, 12–18, Moor-gate, London, E.C.2, in which, following a complaint by a man that his house was practically tumbling down about his ears and a request to see the surveyor's report for which he had paid, it is stated:It is clearly indicated on page 10 of the society's brochure that the inspections of properties which are made for the society are for the information of the board of directors only, and that the reports on securities offered are of a confidential nature.Obviously, as was stated by the hon. Member for Harwich (Mr. Holmes), this is based on caveat emptor; but we are dealing here with a situation where all the financial and legal weight is on one side. There is, on the one side, the immense weight of these building societies, with their capitalised value of £710,000,000, and on the other side, the small man who does not know anything about these things. There is nothing in this Bill that will make these reports available to the purchaser. It is true that the assessment record is open to auditors, but that is of no use, since that is only after the agreement is signed. I would remind the right hon. Gentleman the Chancellor of the Exchequer that even the fact on which he placed such stress, that the man is now to be told of the amount of collateral security, may easily be got round, because there is nothing in the Bill which makes it obligatory for the man to be told before he signs the contract to buy the house. It is true that in some cases, although by no means in all cases, the two agreements are signed at the same time—the agreement to buy the house and the mortgage with the building society; but they need not be signed together, and in many cases they 393 are not. Therefore, a man may be told that collateral security has been taken by the building society only after he has signed the agreement to buy the house, although not the agreement to repay the building society. It seems to me to be important that he should be told before he signs that agreement to buy.
I referred to the presents which this Bill makes to the building societies. What are they? First, there is the very excellent present, in regard to which there is no objection on either side of the House, of making the collateral security retrospectively legal. We had expected that there would be some quid pro quo for that. Secondly, a big present is made by the Schedule to the Bill, which protects the building societies from competition by legal rates of guarantee. This will produce a very difficult position for the builders. I will not go into that matter in detail, but will leave it to my hon. Friends; but I am informed by one house-builders' association that this will mean that, for that society alone, the builders will have to provide £1,500,000 in extra guarantees. That may not very much affect the get-rich-quick rings who build flimsy houses, put in a pretty dresser and a charming colour of paint—knowing the house will hardly stand up for more than five years—get their money, and clear out—going bankrupt if there is any trouble, as Morrell's did. They will not be affected by this Schedule, but the honest, decent, sound builder, who builds from 50 to 100 houses a year, will practically be driven out of business by the Schedule. That is a point which we shall go into in detail in the Committee stage.
The point I am making now is that presents are being made to the building societies by this Bill. The third present, with which I do not disagree, is that commissions are being made illegal. According to a man in the trade, this will mean about £100,0000 to the building societies. Therefore, the building societies will do very well out of this Bill. I realise that so prominent a director of the North-West Building Society as the hon. Member for Harwich welcomes this Bill, but what I want to know is what the unfortunate victim, with whom I am concerned, is going to get out of the Bill. The Chancellor said that he gets Clause 4. What does that Clause do? It states:the society shall be deemed to warrant to the member that the purchase price is reason- 394 able unless before any contract requiring the member to repay the advance is entered into the society gives to the member a notice in writing stating that the making of the advance implies no such warranty.This Clause is typical of the Government. It is typical of the sort of thing that the Government have done even in foreign affairs—never mind domestic legislation. They admit the principle, and then pro-cede to shrink from sanctions. The Chancellor spent a considerable time in pointing out that it was impossible to expect that the building societies should be responsible for any warranty, but in Clause 4 he admits the principle. I am not in any sense a legal authority, but I would refer the right hon. Gentleman to no less an authority than the "Law Journal," which points out that Clause 4 admits the principle of the responsibility of the society for warranting. As soon as that principle is admitted, the building society is given the power to contract out of that warranty. That means that the provision is of no use whatever. Every brochure that is issued by every building society will do exactly the same as is done to-day in the beautiful brochures of "cosy palaces" at £5 down. They explain in glowing language what a marvellous home life can be built up in the "cosy palace" and then proceed to say that, of course, no warranty is given or implied by the brochure. All that the building society need do is to print that in an inconspicuous corner, and then the law is satisfied. For the Chancellor to suggest that this is any quid pro quo whatever to the house purchaser seems to me to be really unworthy of so great and dignified a legal luminary.
It is no answer for the right hon. Gentleman to say that this cannot be done because a man may have lived in the house for 10 years. There is nothing to prevent it being limited to new houses, for it is with new houses that the problem really arises; a man who has lived in a house for 10 years knows what sort of house it is. I agree with the Chancellor that there is no necessity for any further guarantee, but we are dealing with new houses, and certainly it is not beyond the wit of the draftsman to make that point clear. I am quite prepared to admit that a small man cannot expect the construction of Windsor Castle in a £500 house, but what I am asking is that he should get what he pays for, and, at present, he does not get that.
395 I think the legal mind of the Chancellor of the Exchequer would be shocked if, instead of living in the rarefied atmosphere of the Treasury, he had to deal with some of the dirty work that is going on. I will quote one case to the House. It deals not only with a building society, but with a borough council. It is a case in East Plumstead, which was brought to public notice because in one particular group of houses in East Plum-stead, known as Rockcliffe Gardens, the subsidences were so bad that a man got swallowed up. When the case was before the coroner's court, the coroner made some nasty remarks on the subject, and something had to be done. When the case was gone into, it was found that the subsidence was due to the fact that the Blendon Estate had been erected on a disused brickyard. The Woolwich Council had known this, and had insisted that an extra insurance should be taken out. The Woolwich Council and the builder concealed the fact of the insurance from the purchasers of the property, and the building societies had not obtained the same protection as the landowners. I would mention that the drains were damaged owing to the subsidence in the front garden, the walls cracked, and the bow-window fell away from the walls. All this was known to the council, the building society and the builder, and all of them conspired to keep the purchasers in ignorance of the fact.
§ Miss Wilkinson
If the building society asked the builder to take out a special insurance to protect them because of subsidence, presumably they knew there was something. That is the only proof I can give. This Bill puts upon the directors the duty to employ prudent and competent persons. That seems to me to be the sort of language that one had in Acts in the Middle Ages. Nowadays, we ought to deal with a certificated profession. I will quote to the House a statement from an architect.The trouble is that many surveyors employed by building societies are not specialists in house construction; their interests are in the property market as such, and they are dependent as a class for their livelihood on the builder rather than on the purchaser. Their tendency is therefore to help the builder to sell his house and not to help the purchaser to get a good well-built house for his money.396 It seems to me that, with regard to the survey and the warranty, there ought to be put into the Bill Clauses which provide that the purchaser shall in some way be guaranteed that at least the house, when he buys it, is fit for human habitation. Owing to the very close connection between the building society and the builder, especially when collateral is taken, and when, as is often the case, the solicitor for the one is the solicitor for the other, it becomes a very fine question as to who is, in fact, selling the house, the builder or the building society. This principle of a warranty that the goods bought are reasonably fit for the purpose for which they are sold, is enshrined in the Sale of Goods Act, and has also been agreed to by the House in the Hire Purchase Act. I, therefore, ask: Is this just a wangle between these two bodies, which are growing closer and closer together, in order that houses should be the one type of property for which the purchaser does not get even the simple guarantee which has worked for years under the Sale of Goods Act?
The building societies say that they get certificates, but it is also said that the surveyors often survey only one house in 12. They may see the houses in the course of construction or they may not, and actually in the certificate that is sent to the building society they often say "Houses like Nos. 1 to 4" or something of that kind. It does not matter to the building society if it is getting collateral security. The whole process of the continuing agreement and the builders' pool and the collateral security—all this technique that has grown up—puts an absolutely solid barricade round the building society. The stronger you make that barricade—and I suggest that this Bill does make it stronger—the less it matters to the building society what the house is like on which they lend the money. Therefore if we are to give protection of this kind we ought to demand a quid pro quo. The Chancellor has spoken about the protection of the small investors. I would like to see a Clause in the Bill to the effect that as regards building society accounts, it should be made clear in each annual report how much of their funds are collateral securities and how much actual investments. I think that rise to £127,000,000 from £9,000,000 is not accounted for only by investments. A considerable amount 397 of the annual increase, we believe, is collateral securities. [HON. MEMBERS: "No."] Well, people who are working on the inside of this business assure me that it is and if it is not, what is the objection—
§ Miss Wilkinson
And those advances are made on the basis of collateral security. I think the Chancellor said that there was a total of £710,000,000 of invested money, taking all the building societies together, and I think it would be very interesting for the ordinary investor to have this information in the annual report. If there is nothing to hide, what is the objection to putting it in the annual report of the building society? If there is something to hide, it is time we knew it. The investor ought to know how much of these funds represent real investments and how much represent collateral security.
There is one other point which I desire to make and that is on the question of foreclosing. Here we have a position on all fours with that which arose in connection with hire purchase. It is true that most building societies, like most salesmen, do not want the property back—they want the money. But there are societies and builders whom it pays to foreclose, especially when a considerable proportion of the price has been paid. I suggest that some sort of provision such as is made in the Hire Purchase Act, should be included in this Bill to the effect that if a certain percentage of the purchase price has been paid, it should not be possible for the society to foreclose without going to the county court. I have heard of cases of foreclosure in which a purchaser has paid as much as 50 per cent. on the price—and that is a lot on a house, much more than the equivalent in the case of ordinary hire purchase. When the purchaser has defaulted for two months owing to unemployment or business difficulties he has gone to the building society and begged for terms. Decent building societies would give the purchaser terms in such cases, but there are societies which foreclose if the purchaser is three months in default. Then they can sell the house.
I know of one case in which a man, who had defaulted for three months, raised the money from a moneylender at high 398 rates of interest, but when he went to the building society he was told that arrangements had been made to sell the house and that he had no further interest in it. Scandals of this sort—exactly the same sort of scandals as those which arose in connection with hire purchase—are to nobody's interest. It would be much better if the Bill provided that before foreclosure took place the purchaser should have a chance to appeal to the county court. There are other cases in which the property has been in such a bad condition that the purchaser thought he was exercising his right in refusing to pay and the house has been sold over his head. I am sure that if the purchaser in a case of that kind had a right of appeal to the county court, no judge would give a right of foreclosure in such circumstances.
I am very sorry to have intruded upon the harmony which seemed to prevail in the House in regard to this Bill, but while we recognise that some Measure of the kind is necessary, the Chancellor ought to realise that what he has produced here is a building societies Bill. He has made no provision at all for the protection of the house purchaser. I suggest that the provisions in that respect which he has put before us are illusory and that he has actually provided the means for "contracting out" by the societies. I warn the right hon. Gentleman that he will have to face a storm of indignation from the thousands of people who have been victims of what I have called this ramp, when the real meaning of the Bill becomes known.
§ 5.22 p.m.
§ Sir George Broadbridge
I do not desire to occupy the House for more than a few minutes. Nor do I intend to make any general comments upon the Bill because it has already been dealt with most adequately and, notwithstanding the last speaker's remarks, I am satisfied that there is general approval for this short yet important Measure. I desire to call the attention of the Chancellor to three points, two of which may be considered building society points while the third concerns the profession of auctioneers and house agents. In Clause 2, Sub-section (2), there does not appear to be any power enabling a building society to take into account the value of freehold or leasehold property charged by a third party as an additional security, or even 399 freehold or leasehold property of the member other than the mortgaged property. If that assumption be correct—and it may of course be a misapprehension—it is suggested that freehold or leasehold property should be included in the various classes of additional security in Part I of the Schedule.
The second point relates to Sub-section (3) of the same Clause, in which reference is made to advances under that Clause not exceeding 95 per cent. of the amount of the purchase price for the defraying of which the advance is made. I am given to understand that in certain cases it is usual for the purchase price to include all law costs, Stamp Duty and road charges, and sometimes even wireless apparatus and costs of removal. If that be correct, it seems to me that the remedy is to have the purchase price defined and that the limit of the advance should be defined as 95 per cent. of the purchase price or 95 per cent. of the valuation, whichever is the lower figure. My last point is that auctioneers and house agents seem to be under the impression that under Clause 6, as now drawn no auctioneer or house agent would be permitted to claim for and receive any commission from building societies in relation to their property. I do not think this effect was contemplated when the Bill was drawn. Perhaps the right hon. Gentleman will be able to see that that point is clarified. If such a prohibition were allowed to remain, it would have a most serious effect upon the profession of auctioneers and house agents.
§ 5.28 p.m.
§ Major Milner
There are two preliminary observations which I wish to make. The first is that we must all have appreciated the arguments put forward by my hon. Friend the Member for Jarrow (Miss Wilkinson) and the forcible but feeling way in which she stated them. I am bound to say, however, from an experience of a good many years in a great many different capacities both professionally and as both mortgagor and mortgagee that I doubt very much whether instances of the kind which she has given are very numerous. I have never in fact known of a case in which it paid a reputable building society to foreclose. It may be that there are isolated cases of the nature indicated by my hon. Friend, but I also believe that to a very 400 large extent this Bill will help in preventing that sort of case from occurring in the future. Then it is rarely that we on these benches find ourselves so much in agreement with the Chancellor of the Exchequer as to be able to offer him our congratulations, but I think that on this occasion we might do so in connection with this Bill. I feel that this is a Measure which has been needed for some time and which will serve a very useful if restricted purpose. It does not do everything that all of us would like, but we all know that very rarely does legislation do all that all parties would wish it to do, and there can be no question but that, if this Bill passes into law, considerable advantages will accrue to borrowers and certainly advantages, by way of standardisation of the best practice, to building societies and hence to their investing members, whom, it must always be remembered, form the greater number.
It seems to me that there are three or four obvious advantages in this Bill to borrowers. The hon. Member for Jarrow complained, in the matter of collateral security, that her real objection was not to the fact that collateral security was given, with which I entirely agree, but with regard to the manner in which and the secrecy with which it was given. My hon. Friend must admit on consideration, I think, that the first advantage that this Bill will give to a borrower is that it will disclose to him the true position in regard to the advance proposed to be made by a building society and with regard to the collateral security and, I hope, if the rules are properly drawn, will also disclose the nature of that collateral security.
§ Miss Wilkinson
I do not know whether 6,000 individual cases can be called isolated instances. My hon. and gallant Friend apparently ignores the fact that there is nothing in the Bill to require that the facts shall be disclosed before the mortgage is completed.
§ Major Milner
I do not altogether agree with the hon. Lady there, but I am sure the Chancellor and all concerned would see that any necessary Amendment was made to ensure that the true position should be disclosed to the borrower before the mortgage was entered into. A borrower also has a remedy for that complaint in his or her own hands. A prudent man very frequently applies to a building 401 society to ask what advance it will be willing to make in the event of his entering into a contract to purchase a certain house. Therefore, my hon. Friend must appreciate that these matters are very largely in the hands of the borrowers, though I admit that many of them do not know the law, and there is no doubt some necessity for them to be fully advised on these points. This Bill, however, in the first instance will disclose to the borrower what is not always disclosed now, and that is the true position. In the event of an abnormal advance being made, that fact will be clearly brought to notice, and the fact of the collateral security and the nature of that security will be brought home. It is true that there has been comparatively recently a good deal of what, for want of a better term, I would describe as high-pressure salesmanship of houses on some estates. Representatives of builders have, if only by inference, held out that small deposits plus an advance from the building society would enable a man to purchase a house, and in my view it is essential that this Bill should ensure that in such cases the fact that collateral security is being given should be made clear to the prospective purchaser.
I also think it is of some help—and I differ from my hon. Friend again in this—to have it laid down that it is the duty of the building society to have valuations made by competent and approved persons, as such a course is surely some safeguard to a purchaser or a borrower. I think it is also helpful to a borrower to have it laid down, though in my view, speaking as a lawyer, the present law is largely being re-enacted, that the best price must be obtained on re-sale. I would point out that here again, having regard to the large number of mortgages in being defaults are comparatively rare—something like 0.5 per cent. I believe; that is to say, there are only defaults in something like one out of every 200 mortgages. The other advantage to borrowers that I see in the Bill is that the liability of directors is approximated to that of the directors of a public company. There are, I think, some 900 building societies in all, and this Bill will very largely—though I do not agree, here again, with my hon. and learned Friend o nthe Front Bench that a precise and detailed code is laid down—standardise the practice of the best societies in some respects.
402 I regret, however, that advantage has not been taken by this Bill to make one or two other alterations in the law relating to building societies. I believe that to-day there are far too many societies. Many of the 900 societies which exist are too small to function adequately and to give the protection, both to their investing members and to their borrowing members, which we all think is desirable. The process of amalgamation of building societies is a long and somewhat complicated and difficult one, involving a vote of their membership and the obtaining of a certain proportion of votes in favour, and that is not always easily done in the case of large societies. I had hoped, therefore, that the Bill might have included a Clause simplifying the matter of amalgamation, because I think it is in the interest of the movement and certainly in the interest of the country that building societies, and particularly the smaller ones, should be amalgamated.
Another help to the building societies and, I think, also to the borrower is that this Bill will definitely go a long way towards cutting out uneconomic competition. That competition, in my experience, has tended to be rather dangerous and has resulted in the case of some societies—not many, it is true—in over-trading and in some of them lending money which they borrow from the bank and so on. In these days it is essential that in all our financial institutions, and not least our building societies, in which possibly a third of the whole of the savings of the working classes and the middle classes of this country are deposited—there should be no difficulty in liquidating any assets. I know that the best building societies have a substantial degree of liquidity and considerable sums in the bank and in easily realisable securities, but that is not always the case, and I suggest to the Financial Secretary to the Treasury that it is very desirable that the Registrar or the Treasury, it may be, should give a little thought to this matter of liquidity. It is a matter of the first importance, and I am sure that the great majority of building societies, and certainly all the most reputable ones, would not object to an eye being kept on that situation, especially in present circumstances.
There are one or two important points of detail in the Bill to which I would like to refer. The Chancellor referred at some length to Clause 2, which limits the 403 classes of additional or collateral security which building societies may accept, but there is an omission or two from the Schedule. For example, if my son, or it may be my wife or my sister, wants to buy a house, a building society might not be willing to lend to him or her or to lend sufficient or as much as he or she would want, or indeed to accept such a borrower at all without a guarantee from someone like myself such as a father, husband, or brother. It is quite a frequent thing for a personal guarantee to be given in respect of an advance to be made to a third party. This Bill apparently does not, for some reason which I cannot understand, permit of such a guarantee by a third party without a deposit of securities and it also appears not to permit a debenture to be given by a limited company or a guarantee by the directors of a limited company unless certain deposits set out in the Schedule are given. The Schedule requires revision in those respects.
My hon. Friend the Member for Jarrow referred at some length to Clause 4, under which I have no doubt the building societies will make it clear, as some of them do at present, that the mere making of an advance implies no warranty whatever as to the construction of a house. That Clause, however, will serve a useful purpose in clearing up misapprehensions on the point. My hon. Friend the Member for Jarrow, I understand, is of the opinion that the onus should be put upon the building societies of giving some sort of warranty as to the proper construction of a house and so on. I entirely agree with the Chancellor that in the great majority of cases that would be quite impracticable, even with new houses, to which my hon. Friend referred. In my view, it should not be the function of a lending institution to give any such warranty. That duty or function is already put upon the local authorities, and any hon. Member who cares to look at a copy of the model by-laws which have been, or ought to have been, adopted by progressive local authorities will see that there is ample scope there for a local authority to ensure, through the surveyor or other appropriate official, that houses are properly constructed. It may be that in some instances that duty is not fully carried out, but it is a duty laid on the local authorities and one which ought not to 404 be put in any sense upon a building society. I would rather it were put upon the builders. It is a matter where the builders could put their own house in order, and to that extent the Builders Registration Council, to which my hon. Friend has referred, should be encouraged.
I am strongly of opinion that the great majority of houses in this country are not jerrybuilt. Something like 4,000,000 houses have been built since the War, and it cannot be gainsaid that the cheap house has fulfilled a demand. And, as my hon. Friend admitted, you cannot, for £400, £500, or £700, expect to have a house built of the structure and lasting capacity of Windsor Castle. This Bill will ensure, at any rate, that a house has been valued by competent individuals and that attention is drawn to the precise amount of advance that is being made by the building society, and particulars of the nature of any collateral security, and it will go a long way to prevent what I agree is a wrong impression sometimes given to purchasers to-day. All of us have seen on the roadside houses advertised for £600, secured for £30 from the purchaser and £570 from the building society. That creates the impression to a prospective purchaser that, as a building society is willing to lend £570, he cannot be far wrong in purchasing the house for £600. If, however, the real facts are put before him he cannot be under that impression.
Then I agree with the hon. Gentleman the Member for the City of London (Sir G. Broadbridge) that Clause 6, with regard to the payment of commissions, should be more precise. There are cases where commission is paid to a builder's foreman or to individuals or firms whose function is merely to put a rubber stamp on the application to a building society. That is wrong and the Clause should be made more precise. With regard to Clause 7, dealing with valuation, I am bound to say I should like to see it laid down that all building societies should have to do what the best of them do to-day, namely, employ independent qualified valuers. There is a saving clause for directors who do their own valuation, but I do not think it is really the function of directors of a lending institution to make valuations of property in respect of which in another capacity they will have to decide in regard to a 405 loan. It is a prudent thing for directors to take a personal interest in the work of their society and to inspect properties, but the actual valuation should always be done by a qualified valuer. I should like that to be ensured in this Bill. The Bill goes a long way towards ensuring uniformity and in lessening uneconomic competition between building societies. It is curious, however, that no reference is made to the question of the length of term for which a mortgage can be taken out. I imagine that the Government's diffidence in referring to terms and in not restricting terms is due to the fact that they themselves authorised under their Housing Act advances by building societies for 30 years, a longer term than had ever been contemplated previously. I am not sure that some restriction is not required in that matter.
I would also have liked to have seen in connection with these continuing arrangements, or pool schemes as they are termed, some provision whereby the builder is entitled to an automatic release of the whole or some proportion of his deposit at certain stages in the reduction of the mortgage. To my knowledge there are pool agreements in existence which leave the discretion far too much in the hands of directors of building societies. Some are willing to hand over a portion of the pool deposits at certain stages, but there are others who have the power, whether they exercise it or not, to insist on a revaluation and to insist on a retention of the pool deposits almost indefinitely. I would therefore like to see for the protection of the builder some provision for automatic release. Incidentally, in the North of England, certainly up to recent years, the great majority of purchasers of houses did not purchase until they had in their pockets sufficient to pay the difference between the normal advance of the building society and the purchase price of the house. It is in the less thrifty South of England that these practices are more largely indulged in and I venture to say that twice or three times more purchases are made with the aid of pools in the South of England than in the North.
I hope this Bill will pass its Second Reading and notwithstanding the Amendment of my hon. and learned Friend, to which in principle we can all agree, I hope it may be possible to pass the Bill 406 unanimously if only as a tribute to the great services which the building society movement has rendered for the better housing and the greater employment of our people during the last few years.
§ 5.52 p.m.
§ Sir Jonah Walker-Smith
I think that the general consensus of opinion is that this Bill is a step in the right direction. I do not dissent from that view, although I do not suggest that there are not other steps that should be taken in another more desirable connection. This Bill is satisfactory inasmuch as it is a token of appreciation by the Government of the fact that the arrangements for the purchase of a house where there are three parties concerned—the builder, the purchaser and the building society—are by no means satisfactory. There is very much that is wrong and unsatisfactory in those arrangements. I am not particularly concerned with the position of the building societies. They are to be congratulated upon the terms of the brief which they put into very able hands in this House. I have never felt much concern for these finance societies, or building societies as they are usually called. They have enormous assets and are capable of looking after their own interests. I am not in great sympathy with them in the trouble in which they find themselves, for it is largely of their own creation. They have created their own difficulties by their competition for the business that is going. They have joined in this mad gold rush and have given all sorts of promises and inducements to get their full share of this vast expanding business, and many of them have conducted their affairs with a regrettable degree of recklessness. The Government have recognised that. The building societies have recognised it, too, for notwithstanding their much vaunted assets, there are also such things as liabilities and with this vast and rapid expansion this South Sea bubble is in danger of bursting.
It is not in connection with the building societies that I am proposing to make any pleas in this House. It happens that on this occasion I find myself in great sympathy with the views expressed by the hon. Member for Jarrow (Miss Wilkinson). If I understand the theme of her discourse it was a desire that something more and better should be done for the protection 407 of the millions of small owners. I am deeply concerned with the position of the small owners and I wish to address my observations to that subject. I believe, with the hon. and gallant Member for South-East Leeds (Major Milner) that the great majority of the houses which have been built are far from being jerrybuilt and that the millions who have taken on the responsibility of house ownership have had a fair deal. I regret to say, however, that there are a great many who have had a very raw deal indeed. We may be too late to do anything to safeguard the unfortunate position into which large numbers of these 2,000,000 have drifted within the last 20 years. It may well be that we cannot expect the Government to apply retrospectively to these small owners those provisions which in Clause 1 they are applying to building societies.
If we cannot do anything for the 2,000,000 who have assumed the burden of responsibility of house ownership during the last 20 years, we should apply our minds to see to what extent and in what manner we can do something to protect the interests of those millions who will undoubtedly follow in undertaking house ownership. They are bound to follow in enormous numbers, and they will follow for the same reason that induced others to undertake this responsibility. Many of them voluntarily, and some compulsorily, because they could find no other shelter, have undertaken the responsibility of purchasing their homes. Many of them have succumbed to the blandishments of the builder and what the hon. and gallant Member for South-East Leeds termed high pressure salesmanship. Then again there have been those who have been induced by glowing advertisements promising their security and safety, their economy and freedom from all worry and trouble in the future in regard to housing accommodation, if they place themselves in the hands of one of these benevolent building societies. That is bound to happen again.
I do not entirely free the building societies, and I certainly do not free the builders, from a great measure of responsibility for the large amount of jerry-building that has gone on during the last 20 years. There has been unprecedented activity by builders who, being human, think they must build the greatest possible number of houses while the going is good, 408 in case the demand should drop. That has affected the standard of building, which is regrettably unsatisfactory and in many cases much lower than previously was the case. The building societies, not desiring to be out of the running, have also competed for the business, and they and the builders together devised the system of builders' pools and collaterals whereby they have spread the net over a vaster number of those who have undertaken the responsibility of ownership than would otherwise be the case. I do not free either of those bodies from a large share of responsibility for the troubles they have created, not only for themselves but also, unfortunately, for those who have purchased their own houses.
I have two substantive proposals to make to the Chancellor of the Exchequer, to which I hope he will give further consideration. They are intended to be constructively critical and also to assist. The first is that there should be available to the house-purchaser a certificate, a guarantee, a warranty, whatever it may be called, that the house is of standard and stable construction. I should like him to be put in a position to obtain that from a competent and an independent source. Then I should like the builder to be placed under an obligation to provide that guarantee or certificate of fitness when the house-purchaser is making his deal with the builder. I should like to support the view, which I think was submitted by the hon. Member for Jarrow, that it should be a condition precedent to a building society making a loan that they should only grant a loan upon houses which have been built up to a standard not below that which might reasonably be expected. That will do something to secure that it is not a shoddy house but up to a certain standard of construction.
Secondly, I should like the intending house-purchaser to be able to obtain a certificate that the house is of a certain value. If he is in a position to know that the house is of standard construction and to know from an independent and competent source that it is of a certain value, we shall have gone a long way to prevent purchasers in the future from getting into the hopeless morass in which too many have found themselves in the past.
In support of these views I propose to make a few observations upon some of 409 the Clauses of the Bill. I do not propose to comment upon Clause I, because I have already done so briefly, and have noted that the building societies have evidently made great use of their powerful influence with the Treasury. They have, indeed, inspired a number of the provisions on the Bill. I am not particularly complaining of that, but it is obvious that if the Bill had been drafted by the building societies for their own protection it would have been in very similar terms. My main objection is that so much has been done for the protection of these vast financial societies and so very little for the small men who have had the burden of this responsibility for £1,400,000,000 put upon them during the last 21 years, and will, so long as they have two sixpences to rub together, bear the responsibility for repaying that vast debt.
I am concerned a little in regard to Clause 2, on account of the views expressed by the hon. Member for South East Leeds. I understood that he referred to the First Schedule which sets out the six classes of collateral securities which building societies in the future will be permitted to take. I think he suggested that there was excluded from those classes the personal security of the borrower, or the personal guarantee of any other body unsupported by tangible securities, and thought that was an undesirable thing. I do not know whether personal security is expressly excluded, and should be glad if the Financial Secretary would let us know whether that is so. If it is no longer possible for a building society to take the personal guarantee of the borrower that will be of very great advantage; but whether it be desirable or an advantage I should like to know whether it is intended that they shall be excluded from demanding this personal security from the borrower. I am particularly anxious to know, because the personal security of the borrower is of very great value to a building society and is also a very serious obligation laid upon the borrower.
§ Major Milner
I am sure that the hon. Member would not willingly wish to misrepresent me. I made no reference to the personal guarantee of the borrower. I take it that the borrower must be, without question, personally liable to the building society, and that needs no special mention in the Bill, which in this connection deals with guarantors. My point was 410 that it would not appear to be permissible for a third party to guarantee an advance made to someone else. For example, it would not be permissible for a father to guarantee an advance made to his son, or for a husband to guarantee an advance made to his wife, a thing which is frequently done, and I should like that point to be cleared up.
§ Sir J. Walker-Smith
I am sorry if I appeared to misinterpret what the hon. and gallant Member has said. He has now made it perfectly clear, but I still should like to know whether what he has just said is the view of the Government, that over and above the classes mentioned in the First Schedule, the building societies will be able to obtain the personal guarantee of the borrower, because that would seem to be grossly cruel if the borrower had had foisted upon him an unsatisfactory house. I can understand that in many cases he might be only too glad to renounce the house, to renounce his deposits, to renounce any collaterals he has put in—to rid himself of all the responsibility which he now has so long as he has two sixpences to rub together. I think it may be, as the hon. and gallant Member has said, that the societies will be able to demand the personal security of the borrower over and above these other securities.
I am concerned with Clause 4, where it says that a society making an advanceshall be deemed to warrant to the member that the purchase price is reasonable unless…the society gives to the member a notice in writing stating that the making of the advance implies no such warrant.There is a recognition of the need for a warranty of value, and I think it is a pity that the Bill should suggest means whereby that requirement can be so easily avoided, because I suppose that all building societies will give notice to the effect that there is no guarantee. That seems to be a regrettable thing. Sub-section (2) of the Clause states:Any person having a financial interest in the sale or letting of any freehold or leasehold estate or in the erection of any building thereon, or any servant or agent of such a person, who makes any representation calculated to induce a belief that the making of an advance by a society upon the security of that estate imports or implies any assurance to the person to whom the advance is made that the estate is sufficient security for the amount of the advance, shall, without prejudice to any other remedy in respect of the representation, be guilty of an offence.411 Here is is clear that the Government recognise that the millions of small prospective owners are extremely anxious to have an assurance of value. This Sub-section merely gives some negative assistance to them. It prevents a person who has a financial interest in the matter from misleading them, but it is clear that a great void has been left, because it does not fulfil the legitimate desire of the intending purchaser to get an assurance. There ought to be some positive assistance here—not only the negative assistance of not being misled by those who have a financial interest in misleading them, but positive help in the sense of being given access to some means of obtaining the assurance which they seek. Here, again, I think emphasis is laid upon the two points which I ask the Chancellor to consider, that is, means whereby there shall be an assurance as to standards of construction and as to standards of value.
I do not feel particularly concerned with Clause 6 in regard to commissions. I know that this has been inspired by the building societies. It is another indication of the strong influence which these vast financial societies have been able to exercise upon the Treasury in the negotiations about this Bill. It may be, as was said by the Chancellor, that this Clause is for the purpose of unifying the system, making it apply to the whole country. In the north building societies get away without paying commission. In the south they have to pay commission. Building societies would give anything to get rid of this cut-throat competition for business. This will put more money into their coffers, but will not in the least degree help the small man who is going to purchase a house. It is another indication of the willingness of the Government to help these vast financial institutions while doing little to help those who are really most in need of help.
I do not propose to comment at any length upon Clause 7, except to agree with the views which have been expressed that it ought not to be left to the directors of building societies to make the valuation themselves and to exact fees for it, as they usually do. I do not mind their having a fee for doing any particular private work which they are competent to do. They may be builders, or undertakers, or grocers, the people who are running these building societies, and they frequently 412 are. I do not mind their obtaining fees for building or grocery or undertaking, but they are not competent persons to do these valuations. This Clause is intended further to safeguard the interests of the building societies and is not intended, except in a mere incidental way, to protect the interest of house-purchasers. Inasmuch as it would safeguard the interest of these people to some small extent, these valuations should be made by somebody competent to make them.
Those are the only comments which I want to make upon the text of the Bill. In pursuit of the views ably expressed by the hon. Member for Kingswinford (Mr. A. Henderson) I would like to emphasise what he said in regard to the body known as the National House builders' Registration Council. I suggest to the Chancellor, as did the hon. Member, that by means of it he could give effect to the first of my proposals that purchasing owners should be placed in a position to obtain a certificate, assurance or guarantee that the houses for which they are undertaking responsibility for almost the rest of their lives are satisfactorily built. This National Housebuilders' Registration Council is something in respect of which the Minister of Health will be able to advise the Chancellor. It is an independent body acting under the licence of the Board of Trade and is non-profit-making. The Minister of Health has given the scheme its blessing and it has had the full approval of his advisory committee.
The council has been in existence for about 18 months, a comparatively short time, but it has got nicely under way. It has given or is in process of giving certificates of structural stability in respect of about 8,000 houses. The council consists of architects, surveyors, an eminent municipal engineer, a medical officer of health, members of building trade unions, builders and others who are competent to assist in this way, and it has drawn up a standard specification which ensures, if builders will build up to it, that houses will be perfectly satisfactory, and that ownership of them can be undertaken with perfect confidence by intending purchasers.
There is the machine, all ready. I suggest to the Chancellor that he should consider including in the Bill some means whereby the activities of the council can be appreciably expanded. Should he 413 think that this non-profit-making body is not the right one to carry out this work—I have the greatest confidence in it myself—I suggest that the work should be undertaken as a State service by the Government. The machine is ready to hand and if the Government would adopt it they would be performing at least one small service for millions of small house-purchasers.
Having secured a standard of construction, those responsible should be able to approach a parallel body, also of a non-profit-making character and in which owners and others should have the greatest confidence, charged with the duty of giving a valuation of any property that any person might be intending to purchase. This would be somewhat of a new departure and there would be objection and opposition, as there always is to a new departure. There was objection and opposition when the Land Valuation Department was set up, but we have now become accustomed to it and we believe that it does good work. In the same way when it was decided that the circumstances of the time required that the Government appoint a public trustee, objections were raised. There are many precedents for the suggestion I am making, but as a body of the kind is eminently desirable in order that intending purchasers should be able to get an assurance of value, I urge the Minister to take the matter into consideration. If he will do so I am sure he will realise that it would be a very great service to millions of people who greatly need such aid.
§ 6.20 p.m.
§ Mr. Quibell
I have listened with a great deal of interest to the very interesting speech just delivered. The hon. Member touched on a point dealt with by many hon. Members in this Debate when he said that it would be a big advantage to the small purchaser to be able to get a certificate from the man who built the house. During the last few years many people have come into the building trade, and such people have to take the credit for much jerrybuilding. Some of these people have been fish fryers, schoolmasters and men engaged in the furnishing business or in any other kind of trade, and they did not know anything about any of the building trades. They sub-let their housebuilding, first to the bricklayers and then to the joiners, the slaters, 414 and the plasterers, and then they handed the houses on to the purchasers. The building trade cannot take responsibility for that sort of thing, and I can only say that a certificate from that class of man would have little value. Indeed, he will have gone out of the business because he has merely exploited his opportunities.
§ Sir J. Walker-Smith
I was not suggesting that the purchaser should obtain a certificate from the builder, but that the builder should be required to obtain a certificate from that independent body, the National Housebuilders' Registration Council. That is a quite different thing.
§ Mr. Quibell
I am pleased to have got that explanation, but that was not the impression which the hon. Member gave me. Nevertheless, the idea has been expressed by other speakers, and what I said will apply to them. What that class of builder is doing is to take a rake-off and when he has done so, out he has gone, and has left the poor purchaser with a jerrybuilt house and with all the difficulties consequent upon its having been built by somebody who knew nothing about the trade. If there were a close corporation in the building trade as there is in the medical and other professions, such a man would never have been allowed to commence operations, but as soon as that man gets the house passed and a roof on it, he does not care as long as he can find a purchaser. A lot of difficulties are due to that kind of thing happening. It has happened in London and in many other parts of the country, and these men, who are interested only in getting a rake-off, advertise their wares. They know that as soon as they have sold their houses they will get out of the business, having exploited the skilled men that other skilled men in the industry have trained. They have walked away with it. There is a very great grievance in the building trade in regard to this matter.
In common with most people who have studied this Bill I am disappointed, but if I were a director of a building society I should be highly delighted. This is really a building societies' Bill.
§ Mr. Quibell
I can see a little bit of the Attorney-General in this Bill. The lawyers appear in it very prominently. The building societies are doing very well indeed 415 First of all, they are not to be allowed to advance more than £75 out of every £100; that will suit them. That leaves £25, of which the poor old builder can leave in £20, if he chooses. I may say that this will not happen in my case. The poor purchaser puts in £5, and the building society then sits back and, from the first week when the man begins to pay rent, he is reducing the interest and the capital proportionately in his weekly payment. I do not see how you could run the building societies without that, but they ought to be very well satisfied with the Bill.
With regard to the additional security I would draw attention to these words in Clause 2 of the Bill:Where a charge upon a policy of life assurance is taken as additional security for an advance, the value of the policy shall be assessed at an amount not exceeding the surrender value.I have never heard of any other value but a surrender value for an insurance policy, but the Government have discovered that the value of an insurance policy is its surrender value. That takes a bit of doing. As I look through the Clauses I come to that which is termed the warranty Clause. It says:Where a society makes to a member an advance for the purpose of its being used in defraying the purchase price of freehold or leasehold estate, the society shall be deemed to warrant to the member that the purchase price is reasonable.Everybody here knows that the building societies will see to it that prospective purchasers are well warned that the fact that advances are made will imply no warranty. How could the building societies do otherwise? The majority of them go to look at the houses after they are built, and how could a society give a warranty that the houses were built on sound foundations, of good materials and with proper damp courses and drainage? Obviously they could not do it. I suppose the Government have been informed of the steps that the building societies will immediately take in order to comply with this part of Clause 4.
The Attorney-General possesses what I call an acute legal mind. I do not possess one, and I should like to ask him a question or two about Sub-section (2) of Clause 4. If there is anybody outside Colney Hatch can understand it I should 416 like to meet him. The Sub-section says:Any person having a financial interest in the sale or letting of any freehold or leasehold estate.What do you mean by "estate"? Surely you mean a house? I do not know to what the word applies. The Sub-section goes on:or in the erection of any building thereon, or any servant or agent of such a person"—it might have said "his ox or his ass"—who makes any representation calculated to induce a belief"—I am in the business, but it seems that there is not one of my servants who could not get me locked up any day in the week—that the making of an advance by a society upon the security of that estate imports or implies any assurance to the person to whom the advance is made that the estate is sufficient security for the amount of the advance…I am a plain man who has not had very much schooling, and to sit down and analyse and understand that requires a man of the genius of the Attorney-General. I cannot understand why plainer words could not have been used. The Sub-section says:Any person having a financial interest…or any servant or agent of such a person"—and so on. What constitutes "agency"? I know that these are matters that might be considered in Committee, but one would have to sit down and rewrite a Clause such as that in order to know the extent of the responsibility that attaches to us in this matter. I come now to Clause 7. There are four words in that Clause which nothing but a really acute legal mind would put there. Sub-section (1) says that:The duties of every director or member of the committee of management of a society shall include the duty of satisfying himself that the arrangements made for assessing the adequacy of the security to be taken in respect of advances to be made by the society are such as may reasonably be expected to ensure that the adequacy of any security to be so taken will be assessed by a competent and prudent person, experienced in the matters relevant to the determination of the value of that security.A "competent and prudent person." Again I should like to meet that fellow. It depends upon who is to be the judge. I hear someone ask, What about me? I think I am the only one who would fit that definition. Competency depends 417 entirely on training. If a man has had any particular training, he may be competent, but if he has had no training, the question of his competency does not arise, and cannot arise. There are men doing this work who know nothing whatever about the business. In one case I have in mind the man never got out of his car to look at the house. He said it was exactly similar to the others round about—as it was—but he never went into it. There are others who could not value a house if they did go into it; they know as much staying on the road in a car as they would know if they went into the house. They have no qualifications whatever beyond a few letters after their names, the meaning of which goodness only knows. They are out of work one day, they set up a little office, join some little organisation, and the next week they advertise themselves with these letters; and the poor ordinary fellow who wants to buy a house says to himself, "This is the kind of man you can place confidence in," though he has not been in the business five minutes.
So far as this Bill is concerned, my view is that it is a piffling Bill. It is not a Bill such as I expected this Government to bring in; it is not a Bill that is justified by the recent case in the High Court. So far as the protection of the ordinary purchaser of a house is concerned, the only people who can protect him are the local authorities, and I blame both the Government and the local authorities in this regard. A man I know, who is a builder, went into a certain town and began making inquiries for his material. He went to three different builders' merchants to inquire about a damp-course, and the only damp-course he could get was one sold at 15d. a roll of 24 feet—the average stuff that one would put on a little chicken-house. They could not sell any other kind in that place. It should have been something very different, but nothing else could be purchased there. They said it was no use stocking it, because nobody bought anything else, and even that was much too dear for people. A damp house is one of the worst things that anybody could have, and every house should have a proper bituminous or slate damp-course. The drains, the damp-course and the foundations are the most important matters of all, because when the house is built you cannot see them and examine them. You can put a door 418 or a pavement right, but not the foundations, except at tremendous expense, if they are not sound in the first instance. In this case, however, the local authority said they had not the slightest power. They had tried to get amended by-laws from the Ministry of Health, but had failed to induce the Ministry to approve of the amendments they required.
This is not a matter of inspection after the house is built. A valuer can go round as much as he likes, but, unless he cuts a hole in the wall, he cannot find out any defects and he does not stop to do it. In other districts there are 4-inch by 1¼-inch roof timbers, but these are never seen, because the valuer does not go up into the roof and look at them. The only body that can properly inspect a house and safeguard the small purchaser is the local authority, and the local authorities are not doing it because they have not enough building inspectors and because it costs money to do it. I know myself many a score of houses that have been finished without ever being seen by an inspector, not because he would not do his duty, but simply because he has so much to do that he cannot do it all thoroughly and efficiently. The Ministry of Health could have done far more to remedy the grievances that exist in this regard if they had insisted on the adoption of the model by-laws in every case. With regard to the valuation of these properties, I certainly agree that it should be done by a competent man. Anyone in any trade would rather discuss matters connected with their trade with someone who knows something about it. There should be competent valuers.
This Bill is a very small Bill, and a very poor Bill. The building societies, I agree, have rendered great service in this country, and they have been very well paid for it. They cannot have any complaint on that score. I myself and a friend of mine were instrumental in trying to press local authorities to adopt the Small Dwellings (Acquisition) Act. If the Government want to win favour once again among many hundreds of these small purchasers of houses, they should let it be known much more widely that the Small Dwellings (Acquisition) Act is a Measure of which these small purchasers can take advantage. Whereas in the case of a building society it costs 3s. per £100 for repayment of principal and interest, a local authority can lend £500 at 419 2s. 2d. per £100, or a total of 10s. 10d. per week, so that the small purchaser is 4s. 2d. a week better off, which is equal to an increase of 4s. 2d. a week in his wages. The Small Dwellings (Acquisition) Act is a Government Measure, and I should be more satisfied with the Government on the question of housing and dealing with the small man if they would advertise the advantages of that Act and induce more local authorities to take advantage of it. To sum up, there are two things that are required for the protection of the small purchasers of houses—first, the Small Dwellings (Acquisition) Act, which was put on the Statute Book for this purpose; and, secondly, a proper guarantee by the local authority of the quality of the house, which would require a more stringent inspection than at present is being carried out.
§ 6.40 p.m.
§ Miss Horsbrugh
The hon. Member for Brigg (Mr. Quibell), like others of us, knows the difficulties of many people who are in what have been called "convenient modern bungalows" to-day. I think that the great benefit of this Debate is that it will probably give information to many people in this country who previously had no idea that a building society is not a society that builds houses, but one that lends money. One of the greatest difficulties has been that many purchasers of houses have thought that, if a building society lends a certain sum on a house, the house is worth that sum. The great point about the Bill is that it will tell future purchasers of houses when that is not the case. Its value is that it makes clear what a building society does, and what guarantees the building society cannot give.
The hon. Member for Brigg and other speakers have referred to the need of protection for the small house purchaser, and I agree, but I am not sure that this Bill is necessarily the right place to give that protection. I think that protection ought to be given to all purchasers of houses, and not merely to those who purchase through a building society. The hon. Member for Brigg pointed out the difficulties of inspection in the case of houses that are already built, and that, if local authorities were able to make much closer and more detailed inspections before giving a certificate, much of the difficulty would be done away with. 420 Therefore, I am anxious that this protection for the house purchaser should not necessarily be included in the present Bill, because we want to tell the public that the protection or lack of protection is the same for people who purchase houses, whether by building societies or not. I consider, and I think many others will consider, that the ordinary purchaser of a house should have some guarantee, and should not be left with the idea that, if he has got a loan from a building society, it is a guarantee that his house is up to the proper standard. Misunderstanding is one of the grievous things in this modern housing problem. The hon. Member for Brigg read out in some detail Sub-section (2) of Clause 4, but I should like to refer to Sub-section (1). If we want, as I think the Government want in the Bill, to make more plain to the house purchaser—the borrower from the building society—what he is guaranteed and what he is really getting, I cannot think that the method of Clause 4 is the best. Sub-section (1) says:Where a society makes to a member an advance for the purpose of its being used in defraying the purchase price of freehold or leasehold estate, the society shall be deemed to warrant to the member that the purchase price is reasonable unless before any contract requiring the member to repay the advance is entered into the society gives to the member a notice in writing stating that the making of the advance implies no such warranty.Would it not be better—either to make it quite clear that there is no warranty, or, on the other hand, that there is to be a warranty in all cases, except where stated? Could we not have something simpler than saying it is to be a guarantee unless it is not a guarantee? It might not be very easy for the borrower to find out, and he might well have an idea still that there was a guarantee, unless he looked in some remote corner of an advertisement or pamphlet and found that there was no guarantee.
In making these criticisms, I want to say that I believe the building society movement as a whole has been of enormous benefit to the people of this country. Many people have been able to get the homes which they wanted, thanks to building societies. But, as hon. Members have pointed out, in these latter days other persons have come into this building society movement who have not had the ideals and aims with which these societies began. Under the term "building society," and just legally under that 421 term, people are working with objects that would not have been recognised in the old days. They have not had the same big ideal of helping this home-making and thrift in Britain. The hon. and gallant Member for South-East Leeds (Major Milner) gave a graphic description of that high pressure salesmanship which is carried on by people who come in, acquire just enough money, and then clear off.
I am sorry that the Secretary of State for Scotland is not on the Front Bench, because some of the cases that I have in mind relate to Scotland. I know of cases where houses have been purchased, in some cases through a building society, and in others not through a building society. They have been examined, perhaps, by the local authorities. I agree that there may not be enough building inspectors, and perhaps the byelaws should be tightened up. I know of cases where there were bad floors and fungus growing under them, but the inspectors have been told it will be put right; and in some cases I have been told the building inspectors have given a certificate on the understanding that these defects would be put right. We need far more strengthening of our arrangements with the local authorities. There is a real demand in the country that buildings and houses should be properly inspected, and that no local authority's certificate should be given unless the work is completed, and completed correctly. I know of cases where slates were never put properly on the roofs. In one case I was told that when the inspector came there was snow on the roof, so he had not been able to see whether the slates were properly on or not.
This Bill deals with the building society movement in this country which is a movement for lending money. It is because I believe that this is not a Bill in which we should deal with this subject of protection for house purchasers that I do not support the Amendment of the hon. and learned Member for Kingswinford (Mr. A. Henderson), and I agree with much of the criticism of the hon. Lady the Member for Jarrow (Miss Wilkinson), and action by the Government should be taken but not by this Bill. This is a Bill which should make it clear what the work of the building societies is. I believe, also, that the Government should see that either through more careful working by the local authorities of 422 the present regulations or by new model byelaws, or other means house purchasers get a better deal than they have to-day.
§ 6.50 p.m.
§ Mr. Benson
It is very seldom that I find myself otherwise than in diametrical opposition to the hon. Lady the Member for Dundee (Miss Horsbrugh), but to-day I agree with nearly all that she has said. Quite a number of Members have spoken of the confusion that exists as to the functions of a building society and some have attempted to confuse them still more. The function of a building society is to lend money, and its fiduciary functions are fulfilled if it has seen that the security is adequate for the protection of its investors. It has little or no responsibility to the borrower, and it is quite impossible, under the present structure of building societies, to attempt to put on them responsibility to a third party. The responsibility for seeing that building is done properly must lie with the local authorities, and nowhere else. It has been suggested by the hon. and learned Member for Kingswinford (Mr. A. Henderson) and the hon. Member for Barrow (Sir J. Walker-Smith) that a body named the National Housebuilders Registration Council should be given some form of legal status. I see no reason why a private body should be brought into this matter. The mere fact that the suggestion is made is an indication that the local authorities are not doing their duty. I speak asa competent and prudent person, experienced in the matters relevant to the determination of the value of that security"—at any rate, I pay my two guineas for an appraiser's licence; and I know from experience that the building in one local area is completely different from the building perhaps five minutes walk away, where it is another area. If you compare the work that is allowed in a large town like Manchester, where they have a reasonable staff, with that allowed in some small area on the outskirts of Manchester, you will realise the difference between an efficient housing committee and a housing committee which is either inefficient or lax. As a matter of fact, some of the building which is passed and which is no doubt mortgaged through building societies, is so disgraceful that it is not a question of mere laxity on the part of the building inspector, but of wilful and intentional blindness. Reference has been 423 made to buildings being passed by building society inspectors who have not even got out of their cars. On more than one occasion I have refused to pass work without getting out of the car. One look was enough. It could be seen that the property was jerrybuilt from top to bottom. The erection of such property should not have been allowed. The local authority's building inspector ought to see the foundations, and he should be on the job every other day at least to see how the work is going on because, as my hon. Friend the Member for Brigg (Mr. Quibell) has said, it is no use coming when the property is plastered and painted.
If the local authorities have not get the powers which are necessary, it is their own fault. They can have by-laws which will give them adequate powers. If only local authorities will adopt the model bylaws drafted by the Ministry of Health, and put them into operation, there will be no further grumbling about jerrybuilding. It is no use blaming the building societies, or anybody else but the local authorities. We have jerrybuilding because the local authorities have grossly neglected their functions. There is little or no legislation required for this. It is not a question of amending or expanding this Bill, or even of introducing another of any size. I am glad to see the Attorney-General present. He knows that under the Criminal Justice Bill a probation committee can be surcharged if they allow an inefficient work by a probation officer. I suggest that the hon. and learned Gentleman should introduce a one-Clause Bill enabling the Ministry of Health to surcharge a local authority where a building inspector does not do his job. That will put an end to jerrybuilding.
§ 6.57 p.m.
§ Mr. Hutchinson
There appears to be a substantial measure of agreement on both sides of the House that steps should be taken to deal with the problem which lies outside this Bill, but which has given rise, to some extent, to the need for this Bill. Hon. Members are in agreement that there has been a considerable amount of jerrybuilding going on, and that that has resulted in great hardship to purchasers of houses, who have found themselves involved in expenses for repairs which were never anticipated. The hon. 424 Member for Chesterfield (Mr. Benson) suggested that the right body to deal with this problem was the local authority. I do not think the hon. Member quite appreciates the difficulty in which the local authority is placed in dealing with this problem. Let me see whether I can illustrate the sort of difficulty I have in mind. A builder comes into the area of a local authority and commences to develop an estate, with anything up to 500 houses on it. Obviously, the local authority have not the necessary staff of building inspectors to undertake the work which is necessary, not for compliance with the by-laws but to ensure that the standard of building is that which a purchaser has the right to expect. They are two wholly different things.
§ Mr. Benson
My complaint is that the local authorities have not got the staff, and that they ought to have it.
§ Mr. Hutchinson
Perhaps the hon. Member will allow me to put my point. What are the local authorities to do if they have not the necessary staff of inspectors to deal with the situation? They take on temporary inspectors. That is not a satisfactory way of dealing with the situation. I do not think that you can put upon local authorities the responsibility of ensuring that buildings are completed up to the purchasers standard, if that means that they have to rely upon the work of temporary inspectors for the purpose of inspection.
The hon. Member for Jarrow (Miss Wilkinson) gave a description of the nature of this problem of jerrybuilding, with which I am very largely in agreement. There is no doubt that the sort of defects which she and other hon. Members have described are to be found in a very large number of houses that are going up on new estates all over the country. Those defects are due to the lack of proper survey not at the time when the house is completed but during the period of construction. What is wanted in order to get over this difficulty is not so much to give the purchaser a subsequent remedy against somebody because the house has not been properly built, nor to ensure that there is a survey upon completion, but to prevent this jerrybuilding from taking place; in order to do that the survey must be continuous during the period of building. It is only if you can devise some machinery which will ensure 425 that a proper survey takes place during the process of construction that you will be able to eliminate those defects that are causing so much disappointment and dissatisfaction.
The hon. Member for Jarrow considered that the right solution of the problem is to be found in putting upon the building societies the responsibility for ensuring that a proper survey takes place. I do not disagree altogether with that suggestion, but I can see that there are very considerable difficulties in giving effect to it. Those difficulties have already been pointed out, and the main one is that you do not in that way give a comprehensive remedy, because there are quite a large number of houses that are being built upon advances made not by building societies but by insurance companies, and there are a large number of houses being built without the assistance of mortgage advances at all—quite a number of small houses. Therefore, by merely casting upon the building society the responsibility for the survey you do not necessarily provide for a comprehensive solution of the problem.
There is another aspect of the situation to which my right hon. Friend the Chancellor of the Exchequer referred in introducing the Bill, and that is that a building society is both a lender and a borrower. The building societies provide what is nowadays a most convenient channel for the investment of the savings of small investors. They provide a much more attractive investment for such savings than the Post Office Savings Bank or the Trustee Savings Banks. The fact is that there are far more persons interested as lenders in the operations of building societies than there are persons who are interested in them as borrowers. I am not speaking from information supplied to me by building societies or builders in regard to this matter but I am basing my remarks upon such information as is available from the returns of the Registrar of Friendly Societies. In the latest year for which figures are available, I find that there were, in round figures, about 2,080,000 share investors and 790,000 depositors; altogether, in round figures, there were about 2,800,000 lenders as against 1,390,000 borrowers. Therefore, we have to bear in mind in dealing with a building society that we are dealing with a body which consists of a very large number of persons who are interested in 426 lending and a smaller number of people who are interested in borrowing.
I have endeavoured to ascertain the extent of the interest of these numerous persons who lend their money to building societies, and I find that during the period to which the figures which I have just quoted refer, the total assets of the building societies amounted to £710,000,000, of which about £636,000,000 represented mortgage assets, that is to say, the sums which are secured upon mortgages. Obviously, those investors and depositors must be very small capitalists. I have tried to ascertain the average individual interest of each of these investors and depositors in the sums which the societies have secured upon their mortgages. That is not very easy to do, because some allowance must be made for repayment of mortgages, re-invested reserves and so forth; but so far as I can discover the average interest of each investor would be something like £457. Therefore, it is obvious that they are persons in a comparatively humble position.
If you are going to put upon the building societies an obligation in respect of structures which they never undertook when they lent this money, you are going to jeopardise very seriously the security of those invested savings. One has to be very careful when one endeavours to improve the position of the borrower that one does nothing to prejudice the security which is enjoyed by a very much greater number of lenders who have been attracted by the building societies to invest their savings with them. They have invested their savings in the building societies relying upon the conditions made possible under existing legislation, and clearly this House ought not to alter those conditions in a manner detrimental to their interests, as would be the case if the course suggested by the hon. Member for Jarrow were adopted.
A third alternative was suggested by the hon. and learned Member for Kingswinford (Mr. A. Henderson) and the hon. Member for Barrow-in-Furness (Sir J. Walker-Smith). That was that some responsibility should be placed upon the National Housebuilders Registration Council. That body undoubtedly has done very effective and valuable work. I have had some opportunity of observing the nature of the work which it has done, but the defect of that body at the present 427 time is that it is a voluntary body, and the difficulty with a voluntary body in dealing with a matter of this sort is that of getting the black sheep into the fold. It is easy to get the good sheep into the fold, but the difficulty is to get in the bad ones. Unless you do get the bad ones in you do not contribute much to a solution of this problem. I hope that my light hon. Friend the Minister of Health will consider whether some statutory authority might not be given to this body or to a body constituted on somewhat similar lines. I do not expect that he will be able to give us any assurance of that sort to-night, but I hope that he will be able to give us some assurance that something is to be done by his Department to remedy this grievance, which undoubtedly is causing a great deal of resentment and apprehension.
The Debate has shown that it is not easy at the present time to secure any unanimity as to the measures which would be appropriate to deal with this matter, but I hope my right hon. Friend will consider whether it might not be a wise course to institute a complete investigation into the whole of this subject, so that both his Department and this House will have at their disposal the necessary material for framing a judgment as to the proper lines on which a solution of this problem ought to be undertaken. I feel confident that if he was able to consult with my right hon. and learned Friend the Attorney-General, and some assurance could be given that an inquiry of that nature would be undertaken, many of us who do not at present feel wholly satisfied with the Bill would feel very much more content that something was to be done to remedy the present conditions of affairs.
§ 7.13 p.m.
§ Mr. Poole
Listening to the Debate one is forced to the conclusion that the Bill will fail to meet the opinion of the House unless something more is put into it than is at present found in it. Unless there is more guarantee given to those people who are called upon to borrow money in order to buy their houses, some better assurance and better guarantee that they are getting value for their money, than is provided in the Bill, the Bill will have failed. The Chancellor of the Exchequer showed a good deal of sympathy with the building societies, and I was not altogether surprised at that sympathy. Sympathy has 428 been expressed with the building societies not only on the Government side of the House but at least by one hon. Member on this side. Whilst I should not be loth to give credit to the building societies for the generally good work they have done and the possibilities they have opened up for working men to become the owners of their houses, I cannot give that measure of sympathy which has been accorded to them by other hon. Members.
The Chancellor of the Exchequer gave some indication of the growth of the power of the building societies and the scope of their activities. I think he said that in 1913 they advanced £9,000,000, and that in 1936 that figure had grown to the enormous sum of £1,400,000,000. The building societies are not philanthropists. They do not exist merely for the general good of the community even though they may have done some good to the community. They exist only because, and as long as, there are those who wish to borrow money from them. Their influence in this country has grown in comparison with the extent of the moneys which they have lent to purchasers of houses. This is not the first time that their influence has been felt in this House and we have seen the hand of the building societies at work in legislation which has come before this House. I am reminded of the Housing Act of 1933. If ever there was placed upon the Statute Book an Act which contained the unmistakable handiwork of the building societies of the day it was the 1933 Housing Act. That Act was placed upon the Statute Book simply because the building societies were absolutely bursting with money for which they had no outlet, and it compelled local authorities to cease to build houses for the ordinary applicants, for one purpose and one purpose only, namely, in order that people might be driven into the hands of the building societies and called upon to purchase houses themselves. Three very nice alternatives were offered in that Act to the people who at that time were tenants of municipal houses, and whom the local authority might consider for loan. They were offered the opportunity of paying an economic rent for their houses, of buying their houses either through the local authority or the building society, or of getting out. These three alternatives are still available and they are being put before tenants of municipal houses at the present time and are 429 causing considerable unrest in various parts of the country. They could call upon the local authorities—and here was the gravest evidence of the hand of the building societies—to offer the whole of the land which was available for the building of houses to the speculative builders and the building societies acting in collusion in order that they might have an opportunity of making provision for the ordinary people who were desiring houses. The result of all this has been that in 1934, when the 1933 Housing Act had hardly come into operation, the houses built by local authorities were only 54,000, and those built by private enterprise, in which the building societies had a fair amount of interest, numbered 209,000.
I have always given this Government credit for looking after their friends, and in that particular Act they were looking after their friends and the interests of building societies in no uncertain way, because in the following year, through their restriction of local authorities in the provision of houses for the working classes of the country who are the ordinary applicants on the housing registers of various local authorities, the provision of houses by local authorities had dropped to 34,000, or a decrease of 20,000 in 12 months, while the private enterprise provision of houses, with the vested interests of the building societies, went up to 291,000, an increase of 82,000. Alongside that growth in houses one might have expected an increase in other directions. That policy has borne out the fact that building societies are not philanthropic institutions.
In 1935 the 999 societies which are members of the Building Societies Federation made a total undivided profit of £30,500,000, and in the following year, owing again to the restrictive efforts of this Government's housing legislation, they had a profit of over £34,000,000, an increase of 11 per cent. Thanks to that Act of 1933, which was put upon the Statute Book by the Government of that time solely in the interests of the building societies, in most of the areas of this country to-day the only way in which young people who desire to marry and to establish a home of their own can obtain possession of a house is to go to these self-same building societies and be held at the mercy of the speculative 430 builder and the building society. In view of that position, which is not capable of contradiction from any quarter of the House, no provision is being made to-day in any part of the country, in other than small schemes, for the ordinary housing applicant, except that which is made by the speculative builder and the building society.
In view of that fact, it is the duty of this House to see that the maximum protection is given to the people who are being called upon to take this very grave step with the uncertainty of employment in many phases of industry. It is our duty to see that they get the best possible guarantee of value for their money and are not saddled with an obligation and a burden greater than they can really carry through life. This House called upon local authorities under the 1936 Housing Act to guarantee an excess mortgage from 75 per cent. to 90 per cent. The building societies have been very well looked after by this House. My hon. and gallant Friend the Member for South-East Leeds (Major Milner) said that he did not think that building societies foreclosed. My hon. Friend the Member for Jarrow (Miss Wilkinson) had given a very large figure as to foreclosures which had come to her notice, but my hon. and gallant Friend the Member for South-East Leeds queried whether the building societies really did foreclose.
I can only speak of my own experience as a representative of a local authority which has been giving the additional guarantees of excess mortgage from 75 per cent. to 90 per cent. We have found that the building society operating in our district has no hesitation not so much in foreclosing, but in calling upon the local authority at the earliest possible date, almost as soon as a tenant has defaulted in payment, to honour its obligation, with the result that it has been compelled, rather than risk losing money on the house, to take over the house and pay off the complete mortgage and carry the burden as a local authority. Therefore the building societies have very little at which to grumble. They will experience an improvement in their position through the operation of some of the Clauses in this Bill. I am not concerned so much with them as with the purchasers who are having to enter into mortgages with building societies. They are, in the 431 main, people of the working class who cannot afford to be "done" and to have a bad bargain. If they suffer the calamity of being saddled with a house which is defective, and which perhaps tumbles down around them in four or five years, they will have a burden which they will have to carry perhaps throughout the whole of their lives.
I have seen something of the ghastly tragedy of people, who, to use a colloquial expression, have been "sold a pup." I remember the case of a young policeman of my acquaintance who bought a house for £650, which is a fairly good figure, in the outskirts of the industrial Midlands and which at the end of two years' occupation was completely unfit to live in. There are an enormous number of jerrybuilders, and I wish it were possible for some form of registration or inspection in order to curb the operations of the jerrybuilder and eventually put him completely out of business. Any man who trades on the inability of a purchaser to know the value of the product which he is purchasing is not fit to remain in business. The Chancellor doubts the ability of this House to embody any satisfactory guarantee in this Bill. He said that we could not guarantee houses which had been erected for many years and on which perhaps the owner might desire to raise a mortgage, but, as the hon. Lady the Member for Jarrow pointed out, we are dealing with new houses. I fail to see that there is any difficulty in obtaining a suitable guarantee in the case of new houses.
If the building societies satisfied themselves that all the houses in respect of which they granted a mortgage were soundly constructed, the bad builder would very soon find himself unable to sell his houses and would have to go out of business. The objection was raised by a speaker opposite that many of these houses were built before an application for mortgage was made, but that is not the general practice. The builder always works in close contact with the building society. He lays himself out to construct so many houses, always having previously entered into an arrangement with some building society or other in his district to grant the necessary mortgages in the selling of the houses. Therefore, it is possible in most cases for the building society to 432 follow the whole of the construction right through from the commencement.
The analogy of the Chancellor of the Exchequer of the builder and the pawnbroker was a very bad one. The answer of the Chancellor of the Exchequer, when he suggested that, when a man goes to pawn his gold watch, he might be called upon to prove to the pawnbroker that the watch was a gold one, obviously does not hold, for the reason that the pawnbroker—the man who is the purchaser—is an expert in respect of the article he is buying. He is more expert in buying a gold watch than the man is in selling it. Pawning is often the same thing as selling articles, because they are not redeemed; otherwise pawnbrokers would go out of business. The analogy is wrong because in 99 cases out of 100 the man buying the house knows absolutely nothing about the building of houses. He is completely at the mercy of the men who build the houses, unless some Clause is inserted in this Bill to provide him with a guarantee.
Clause 4 provides a warranty as to a reasonable price. Many speakers have dealt with this, but I am wondering, if some dispute arises as to whether a price really is a reasonable one, the building society having given a warranty, how the buyer is to prove the price is unreasonable. Is the man who has been called upon to enter into a 95 per cent. mortgage in order to get possession of a house the type of man who is likely to have the economic resources to enter upon a legal action to prove that the building society was wrong in its statement that the price paid for the house was a reasonable one? Clause 4 will require some clarification and amendment in Committee. Clause 7 is clearly loose in laying down the provision as to "a competent and prudent person." Who is a competent and prudent person? We should all perhaps differ in this respect. What is the difficulty in laying down that this work shall be performed by a person in the building industry whose job is to supervise? Why should not this work be performed not by somebody vaguely described as "a competent and prudent person"—this is capable of much misunderstanding and misuse—but by a person who is a qualified architect who should give that assurance?
The only way in which, in my opinion, we could hope for a satisfactory solution 433 of this matter, unless we could get definite guarantees from building societies, is along lines which I know will not commend themselves to this Government, but I personally should like to see local authorities given adequately extended powers of granting mortgages for the purchase of houses. Certain provisions do exist now for advances on mortgages. I should like the local authorities to be given complete powers to make such advances, because they would then command the confidence of the people who were asking for the advance, and they would have to satisfy themselves that the houses on which they were making the advances were soundly and properly constructed. That would be the best safeguard the purchaser could have.
§ 7.31 p.m.
§ Mr. Keeling
Before the Attorney-General replies I would like to make two or three short comments from the point of view of the building societies. I wish to disclose my interest in this question, namely that I am a vice-president of the Building Societies Association. A number of speakers on the other side, beginning with the first speaker, the hon. Lady the Member for Jarrow (Miss Wilkinson) and ending with the last speaker, have demanded that the Bill should contain a provision that building societies should in all cases, without the right to contract out, give a warranty of the quality or the value of the house. I submit that there are two answers to that demand, each of which is conclusive in itself.
The first is that no other lender of money is ever required to give a warranty of the security on which he lends money. The hon. Member for Lichfield (Mr. Poole) made a comparison with a man going into a pawnbroker's shop and pledging a gold watch. I think that he rather missed the point. If it is a fact that the pawnbroker knows more about the value of a watch than a building society knows about the house, that is surely a reason why we should expect the law to say that the pawnbroker should give a guarantee. But in fact the law does not require a moneylender, whether he be a pawnbroker or anybody else, to give any warranty of the value of the security on which he lends, and it is not a reasonable obligation to put on this particular lender, the building society.
434 The second answer to the demand for a warranty is this—and it is a point which the hon. Member completely ignored. In three cases out of four the building society does not see the house while it is under construction, and it is therefore not reasonable to expect it to guarantee the quality. Just as a pawnbroker can give no guarantee about the watch because he does not know its history, so a building society cannot be expected to warrant a house which was finished before ever the society came on the scene.
We all know that jerrybuilding goes on, and we all want to stop it. But those Members who demand that it should be stopped by putting the obligation of giving a warranty on the building society are barking up the wrong tree. The remedy is surely, if we can, to prevent jerrybuilding before it occurs. One hon. Member said it was too late, but I am sure it is not too late, because saturation point in building will never be reached, we hope. I should like to support very strongly the suggestion of my hon. and learned Friend the Member for Ilford (Mr. Hutchinson) that the Ministry of Health should set up a committee of inquiry into jerrybuilding. It may be that such a committee would recommend the giving of statutory authority to the Builders' Registration Council, or it may be that it would suggest some other remedy for jerrybuilding. Whatever practical remedy such a committee suggested, I am perfectly certain that building societies would, in their own interest, give it their very strong support. I even go so far as to say that the building societies would refuse to lend money on houses erected by builders who were not members of the Registration Council if the Council were given statutory authority, or who did not comply with any other recommendation which such a committee made. In the meantime I suggest that this House should support this Bill which, after all, is a building societies Bill and not a builders Bill.
§ 7.36 p.m.
§ Sir Francis Fremantle
I want to make only one point, as a local medical officer of health who has paid a great deal of attention to the question of building, and incidentally to that of building societies, without having any such connection with them as that of my hon. Friend who has just sat down. The hon. Member for 435 Chesterfield (Mr. Benson) wished to place the responsibility of seeing that houses are properly constructed upon the local authority, and he added—and I entirely agree with him—that it is at present possible for an inspector to give his certificate on the strength of seeing a house after completion, but he went so far as to say that the house should be inspected constantly during building, and even every day, or every hour. Obviously the objection is that the local authorities have not got the requisite staff. It is easy enough perhaps in the case of the large urban authorities, which can enlarge their staffs in order to carry on current duties. But a large proportion of these jerrybuilt houses are being erected in the outskirts of towns in rural districts, or in small urban districts where there is a single surveyor who is inspector as well. He has got innumerable duties, and cannot spare the time to look every day after buildings that are in course of construction. In any case his inspection is bound to be rather superfiicial.
And yet I do think that the proper body for seeing that a house is properly built is the local authority. The local sanitary authority has already the duty of certifying that the house is fit for habitation. Where you are dealing with a county, consisting of rural areas and small urban areas—and many of them being invaded from the towns—the county council could perfectly well take on the work of supervising, either by way of assisting the local sanitary authorities or as the supervisory body itself. I have over and over again recommended that where I have had the opportunity of doing so. In a number of cases a county council has appointed a sanitary inspector or a housing inspector on its staff. They have the power, and indeed the duty is laid upon them, to report to the Ministry of Health any matter of sanitation in which they consider that further action or inspection is required, and I believe that the county councils ought to be given wider duties of superintendence, even if it be limited to those cases in which the local sanitary authorities ask for their help. But in my view the local authority, whether it be the local sanitary authority direct or that authority with the help of the county council, which is already responsible for seeing that a house is fit for occupation, 436 should also be responsible for seeing that it is inspected throughout the course of construction. If that were done it would do much to put an end to jerrybuilding.
§ 7.40 p.m.
§ Mr. Magnay
Most of the matters I intended to raise on this Bill have already been dealt with by other speakers, and the only point I desire to make concerns Clause 7, in regard to the valuation of security for advances. I suggest very strongly that the "competent and prudent person" therein mentioned should be a qualified valuer, a man whose business it is to value, and who pays the requisite fees before entering on that business. I had the other day from a building society which I know something about a communication the writer of which is a valuer in the town which I represent. He and his colleagues in that profession have suggested to me that directors of building societies, who are of all professions or of none, should not be the responsible authorities. I have known people who were successful business men, or men retired from business, some of them very prosperous men, and men of sound judgment, who would come under this description of "competent and prudent persons." But in valuing houses they have gone in a friend's car or a taxi and done as many as 30 or 40 valuations in a day, and their reports have been accepted. I suggest that that valuation should be done by a properly qualified professional man, who, I understand, if he has been negligent or done a wrongful act, can be held responsible for it. Those who at present carry out such valuations are not liable to be punished for negligence or wrongful acts.
I welcome this Bill. Its effect will be to bring all building societies up to the standard that sound building societies have followed for many years past. There are far too many building societies which for some time past have regarded themselves as high finance companies, and in my opinion have offered all sorts of wrongful inducements to secure business. I have over and over again seen advertisements saying that £5 down will secure a mortgage for an applicant. That is not the type of person that building societies were formed to help. They were intended to help thrifty persons who in the course of years are thus able to become the owners of their own houses. 437 I believe that this Bill will bring building societies up to a higher standard, and will help all those who are engaged in what I regard as the very beneficent work of making it possible for a man of small means to own the house he lives in.
§ 7.45 p.m.
§ Mr. Hicks
I should not have taken part in the Debate, as most of the points have been sufficiently well covered already, but for the fact that I think it is necessary to reinforce the point in regard to inspection which has been made by one or two hon. Members. On many occasions I have had an opportunity of addressing the House on building matters, and in the main I should say that our buildings are fairly well constructed, although there arc a number of people who utilise any opportunity for their own individual advancement irrespective of whether the commodity they are offering is a good commodity for the public. It is easy to say that the plans of a building have to be submitted to the local authority. In outward appearance they may correspond to what the authority may think is necessary, but when the details are examined many of the features are found to be diluted, and the result is that the purchaser or the tenant gets a very poor commodity. It is easy to say that local authorities should carry out inspection. We have tried to get them to do so, and to the best of their ability they are doing it. But the degree of inspection is totally inadequate.
The building industry itself attempted a few years ago to evolve a method by which to protect the house owner from exploitation by those who were making building societies the means of private opportunity. We considered the matter very extensively with employers of labour, with architects and with building societies and surveyors, and we agreed on the draft memorandum which could form the basis of an organisation to give this protection. We consulted the then Minister of Health who is now the Secretary of State for Air, and he was equally as concerned as we were to see that the purchaser got a good commodity. He gave us his blessing. The National House Builders Registration Council was set up and has come to an agreement with the best building societies. Some of them, I agree, are not building societies at all; they are financiers. But this council has been 438 formed, and there are five stages of investigation and report. Competent surveyors are sent round to see that not only are the foundations properly prepared and built, but that the building is properly constructed. They investigate the first floor to see that everything is in accord with the plans and with the bylaws. They examine the roof and the sanitary arrangements, and finally they make an examination of the building. Therefore, this agreement will guarantee to the client that not only is the house built under conditions which are nationally recognised, but there is also an undertaking that if anything goes wrong within the first 12 months they will put things right at no expense to the person who is buying the house.
The Minister of Health can give us some encouragement in this work, and municipal authorities can give us some assistance if they will insist on efficient scrutiny, examination and report. If this is done, then those who are purchasing houses can feel sure that they are investing their money in a safe and proper building and will get an adequate return for their investment. I do not want to point out the deficiencies of the jerry-builder, but I do want to emphasise the fact that if there were this efficient check it would be a step in the right direction.
§ 7.52 p.m.
§ Mr. Westwood
If the suggestion made by the hon. Member for Woolwich (Mr. Hicks) and the hon. Member for Gates-head (Mr. Magnay) were given effect to in this Bill, I am sure it would provide a further safeguard so far as the purchaser of a house is concerned. I am in hearty agreement with it. I think that Clause 7 should be amended and that a more definite form of words should be inserted. Instead of it being "a competent and prudent person," a fully qualified valuer only should be entitled to give a certificate as to the stability of a house. When it was suggested that this was a building societies' Bill some hon. Members seem to treat it as a joke. I think I hear the Attorney-General saying, "Hear, hear." That is our complaint; our Amendment points it out. It should have been a building societies' and house purchasers' Bill. The main safeguards in the Bill are all in the interests of the money-lender; there are very few safeguards so far as the borrower is concerned.
439 I do not want hon. Members to misunderstand the position of hon. Members on this side. We believe that building societies have done, and are doing, very valuable work in encouraging thrift and in enabling people to purchase and occupy their own house, which would be impossible but for the method of borrowing which is made available by building societies. We have no complaint about building societies as such, but our Amendment draws attention to the fact that whilst the Bill provides safeguards for the lender, it provides very few real safeguards for the individual who is seeking to purchase his house under the instalment system. It has been suggested by the hon. Member for St. Albans (Sir F. Fremantle) that a real safeguard would be for a local authority to give a certificate of fitness for occupation. That is no safeguard at all. It would be no safeguard at all for those we are trying to protect. A jerrybuilt house may be fit for occupation to-day and it may be fit for occupation for five years, but at the end of that time it would be altogether uninhabitable. It must be remembered that the person's own savings and the investments of building societies are involved in a house which is expected to last for 40 or 60 years. In most cases it is a 20 years' loan agreement, and a local authority could quite well give a certificate of fitness for occupation to-day, but after five years it might be altogether uninhabitable. It is absolutely impossible to expect a local authority to take the responsibility of saying that while they know the house is fit for occupation now it is a jerrybuilt house, and will not be fit for habitation five years hence. They have no power to do that. They have only power to give a certificate for fitness for occupation at the time when the certificate is asked for, and all the time the purchaser has to go on paying the annual instalments.
It has been suggested that local authorities are the villains of the piece in not seeing that adequate safeguards are provided for the purchaser of a house. If we are going to pile liability after liability on to local authorities without any additional financial provisions to enable them to meet even their existing liabilities, we are going to destroy the whole system of local government. If you are going to make local authorities responsible not merely for the habitability of a house but 440 for the stability of a house, then there ought to be a definite charge against the building society which is lending the money. You cannot keep piling new duties on local authorities and increasing the cost to the ratepayers, because you will make it more and more difficult for local government to be carried on.
There are two persons who ought to be considered even in a Building Societies Bill, and they are the lender and the borrower. It is equally bad for a building society to lend money on property which is unsaleable or which is deficient in some respect, as it is for the poor soul who invests some of his money in it. It is not only the money of building societies which is invested but it is the life savings of poor people themselves. If they are going to get a 75 per cent. advance, then 25 per cent. has to be provided by the poor person and he has to go on paying more than he would in the ordinary way. In Scotland he has a double liability. He has a liability to the building society and he has also the landlord's rates as well as the tenant's rates and, consequently, the thrift of that individual is going to be impaired unless we definitely guarantee that it is a decent property which they are buying.
There are two persons to be considered, the lender and the borrower. Building societies lend money on two types of houses. In the first place, they lend on houses that are in course of building or that are to be built. I am more interested in the matter from that aspect than I am about the houses that are already built. There are many people who, having saved up and purchased their own property, come up against hard times, and borrow money from a building society. In such cases, the security is known as far as the borrower is concerned, and it is the lender who has to assure himself that there is adequate security. Therefore, in that case there is no real danger. The real danger arises when a house that is being built, or a newly-built house, is imposed upon an individual who is anxious to own and live in his own house. It has been admitted from all sides of the House that jerrybuilding does take place, as we can see if we use our common sense in visiting some of the buildings that are being put up.
As my hon. and learned Friend the Member for Kingswinford (Mr. Henderson) pointed out, if we had developed to a 441 far greater extent the Small Dwellings Acquisition Act, we should have been developing the owner-occupier system with a far better guarantee to the persons living in the houses; for under that Act, there is the duty upon the local authority to see that they have adequate security for the money they lend. The local authority have their own paid staff carrying out the necessary and, I submit, the adequate inspection, because they have to safeguard the ratepayers' money. Consequently, under that Act, not only is it cheaper to the individual who seeks to own his house, but he also has greater security, because he is assured of having a decent bit of property in which to live. I was unable to follow the argument used by the Chancellor of the Exchequer when he said that there was a difference between a guarantee given to a buyer by a seller and a guarantee given by a lender to a borrower, as in the case of house purchase. I cannot see what is the difference, and the Chancellor would have some difficulty in convincing me that there is any moral difference. The guarantee ought to be the same, because, when one buys a house under a house-purchase scheme, one really gets the house on the hire purchase system, and surely, in such a case, the purchaser is entitled to have an assurance that he is buying decent property. I cannot understand how it can be argued that there is a difference such as the Chancellor suggested.
Surely, the buyer of a new house is entitled to have a guarantee that he is purchasing decent property. If I go to the courts in the ordinary course, and prove that someone has defrauded me, I have a legal remedy. Surely, we are entitled to ask for exactly the same thing for the purchaser, on a hire-purchase system, through money lent by a building society, as far as the purchase of a house is concerned. Unless further safeguards are provided in the Bill, we shall allow the swindle that has taken place up to the present to go on. It is admitted on all sides of the House that there have been jerrybuilt houses, and I believe that every hon. Member, on all sides, agrees that the purchaser of a house should get a decent deal, that he should have a guaranteed security as far as his savings are concerned, and that we should try to encourage the maximum use of existing powers for the purpose of developing the house-ownership system. It has been 442 said that much can be done by local authorities to see that decent standards are maintained. That is true, but all sorts of difficulties have been placed in the way of local authorities. In the Housing (Scotland) Act, 1935, there is a power under which local authorities may make by-laws, and if and when called upon by the Department, shall make by-laws, for dealing with this particular problem. I am sorry that there is no Scottish representative on the Front Bench opposite at the moment. The Minister of Health for England is not considered by us as a Scottish representative.
§ Mr. Westwood
I quite agree that he did something to try to get a move on in connection with the by-laws to which I am referring. I am willing to receive an answer from the right hon. Member for Kelvingrove (Mr. Elliot). It would be interesting if he could tell us the number of local authorities whose by-laws have been approved. There are very few. I know the difficulties that have been placed in their way. There are vested interests. Private builders who are on local authorities, and building organisations within the respective towns, are making all kinds of objections even to the model by-laws suggested by the Department of Health. There have been the greatest difficulties in getting the by-laws approved by the Department, for the reasons to which I have briefly referred. Certainly, it would be a tremendous help to local authorities if they were given greater encouragement to get on with the preparation of that type of by-law for which provision is made in Section 70 of the Housing (Scotland) Act, 1935. If they were given new powers, it would give a far greater guarantee to the purchasers of house property.
But when all that is done, there cannot be a real guarantee, when the house is being built, unless there is an adequate staff of inspectors to see that the house is being built in a proper way and that proper materials are used. A private individual, when he asks for a contract and a schedule to be made out, knows, or thinks he knows, the materials that will go into the house, and even a poor man, who gets a schedule on the lines I have suggested, acts as his own clerk of works 443 for the purpose of guaranteeing that the material put into the house is in accordance with the schedule. According to the law, we cannot say that building societies are carrying through the building, but we know that there are dummy companies being formed, that they get their finance from the building societies, that their agents are able to get commissions—there is an arrangement in the Bill to deal with that matter—from the building societies, and to get their profits out of the buildings that are put up, which are not being built substantially, because their aim and object is not to provide a dwelling for the individual, but to make the maximum profit in the minimum time. Consequently, although it is true that much can be done by local authorities to see that decent standards are maintained, it would be an encouragement to them if, when they had submitted by-laws under the 1935 Act, those by-laws were more speedily approved of by the Department. This would certainly give the local authorities a further control which is denied them at the present time.
The last point I want to emphasise is that, if we are going to encourage the owner-occupier system, it is necessary to develop to a far greater extent the Small Dwellings Acquisition Act. I remember asking the town clerk to give a ruling in connection with that Act, which was passed in 1911 or 1912. I think I had the honour of being the second individual in Scotland to move that a local authority should exercise its powers under that Act. It took me from 1912, fighting at different times in two different localities, to 1934 before I could get the local authority of which I was a member to give effect to the provisions of the Small Dwellings Acquisition Act. Approval was finally given in 1936. As a result of the scheme that was put into effect, no less than 60 persons are now living in their own houses, having been provided with money at rates far cheaper than the building societies would provide it, and with a guarantee that the property is worth the money, that it is stable property, and that consequently, their savings are in no way jeopardised. Despite the chequered career of that Act—first, there was a maximum of £400, then £800, and then £1,200; and finally, under the 1935 Act, it was reduced to £800—we have, under that Act, an opportunity of developing the owner-occupier system through our local autho- 444 rities in a way which would give a far better guarantee as to the type of property in which persons invest their money and would give far better results than any of the actions, good as they may have been, that have been taken up to the present time by building societies.
The Amendment which we have moved is not hostile to the principle of carrying into effect the safeguards necessary for the building societies. This Bill is the direct result of a case in the courts in which two different points were raised, the first having reference to the building societies' liability, and the second being that money had been advanced on something which did not conform to guarantee. This Bill provides safeguards for the lender, but there are no adequate safeguards for the borrower, and it is for that reason that we have moved our Amendment.
§ 8.15 p.m.
§ The Attorney-General (Sir Donald Somervell)
I think the House will agree that my right hon. Friend the Chancellor of the Exchequer has good ground for being satisfied with the reception which has been given to this Bill. There have been criticisms from certain quarters and particularly from the hon. Lady the Member for Jarrow (Miss Wilkinson), but, on the whole, the Bill has been recognised as the useful Measure which we believe it to be. That has been so in all quarters of the House except perhaps that occupied by the Liberal party, and I am not sure that we heard any voice from that quarter. But in all other quarters of the House there has been a recognition of the Bill's usefulness and, on the whole, such criticisms of it as have been offered, have been on the lines of suggesting that a different sort of Bill, or a Bill which approached a rather different problem in a rather different way might have been even more acceptable.
Before dealing with the major point of principle involved, I think it would be convenient to those hon. Members who have raised specific points if I said something about those points. Several of those who have taken part in the Debate, including the hon. Member for Jarrow, the hon. Member for Dundee (Miss Horsburgh) and the hon. Member for Brigg (Mr. Quibell), referred particularly to Clause 4 (1). I think there may have been a misunderstanding of the point and 445 intention of Clause 4 (1). The intention is that it should be made clear to the borrower that the society is not giving a warranty as to the reasonableness of the price or the quality of the house, or whatever it may be. One of the points which has been taken up recently, since attention was concentrated by the Borders case on this problem, and one of the points referred to by the hon. Lady the Member for Jarrow, is the danger to the borrower of being under a misapprehension as to the position, and thinking that the making of an advance of a certain amount imported or implied some warranty as to the reasonableness of the price or the quality of the building. That, of course, is not so, but I am not dealing at the moment with the suggestion that there should be a warranty of that kind. What I want to point out is that the object of the Clause is to ensure that it shall be made clear to the borrower that there is no such warranty.
What, then, is the method adopted of ensuring that this shall be made clear to the borrower, and what is to be the sanction if it is not made clear? It could, no doubt, be said that unless this was made clear there should be an offence and a fine, but the method adopted in the Clause, which I think is a better and more effective sanction, is to say that unless this is made clear to the borrower, then such a warranty shall be implied. There are, in fact, technical and legal grounds which would make it very difficult, if we were to put this Clause into the form of saying that unless this notice were given there would be a criminal offence and a fine. It might then be said that that invalidated all the transaction which had that illegal origin, and both borrower and lender might have great difficulty in konwing exactly what the position was.
§ Miss Wilkinson
But if it means that a note to the effect that no warranty is implied, is to be put into every building society agreement, merely pro forma, surely that is useless?
§ The Attorney-General
I cannot agree that it is useless. No one can lose sight of the fact that many of the people who get these loans are not as familiar as some of us are with business transactions, but that is no ground for saying that it is no use having a statutory provision to the effect that this document must make clear, on the face of it, that no warranty 446 is implied. This House cannot do more than say that the fact should be made clear in the document, and if people will not read documents, then it is difficult to deal with the complaint that the matter has not been made clear to them.
§ The Attorney-General
I do not think the hon. Lady has been following my argument, but, no doubt, that is my fault. I know that she thinks there ought to be a warranty, but I have said that I am not dealing with that point at the moment. I was merely answering points which were raised in the Debate. I was asked to explain the form of Clause 4(1) and why, assuming that there is to be no warranty in the ordinary case, the matter has been put in this form. I was endeavouring to show that this sanction which we have put into the Clause is an effective sanction, and does not involve objections which would have arisen had the other and, perhaps, more obvious form been adopted of saying that if the matter was not made clear, the society would have committed an offence and would have become liable to a fine.
The hon. Member for Brigg found Clause 4 (2) very obscure, and the complaint has been made that although the building societies are required to make it clear that they are not giving a warranty, a person acting on behalf of the builder might make representations to a borrower, in order to induce him to enter into a transaction, to the effect that the willingness of the building society to make an advance implied an assurance that the estate was of sufficient security for the amount of the advance. The hon. Member for Brigg read the words of the Clause out in his own inimitable manner and commented on the wideness of the terms. The reason for that is that if a Clause of this kind were confined to the very simple case of representations made by a builder, then you might have representations made, not perhaps by a regular employé but by someone who was got hold of to make such representations, to induce a borrower to engage in a transaction. It has been found, unfortunately, that if one really wants to prevent Clauses of this kind being evaded, it is necessary 447 to couch them in general terms, so as to prevent people keeping themselves outside the letter of the law while, in fact, doing what the law is designed to prevent.
§ The Attorney-General
That is the object. It is wrong for anybody to give an assurance of the kind described in the Clause, because advances by a building society do not imply any such assurances, and it is wrong that inducements of that kind should be made, in order to get someone to enter into the transaction.
§ The Attorney-General
I am stating the general intention of and reason for the Clause. As far as Clause 6 is concerned, I think my right hon. Friend has already informed the House that its wording may require further scrutiny. My hon. Friend the Member for the City of London (Sir G. Broadbridge) referred to the position of auctioneers and reference has also been made to solicitors and estate agents. We shall certainly look into these words in the light of what has been said. The object of the Clause is plain enough. It is to prevent illegal commissions, which are designed to produce and do in fact produce an undesirable identity of interests between the building society and the builder. But nobody desires that a provision of that kind should prevent the reasonable employment for fees of the professional services of people in businesses of the kind which have been mentioned, and I can certainly give the undertaking that my right hon. Friend will look into that matter.
On Clause 7 the hon. Member for Gateshead (Mr. Magnay) asked why we could not provide that in all cases assessment of the adequacy of the security should be made by a duly qualified valuer. One difficulty about that is that there is a multiplicity of organisations to which those who do this work belong. You would have, presumably, to pick and choose and say that certain members of organisations were duly qualified members but others were not, or you would have to put them all in.
§ Mr. Magnay
What the Government have done for many years is precisely 448 that, with regard to accountants, who have to be in certain associations.
§ The Attorney-General
I am aware of that, but my information is that far greater difficulty would be found in selecting certain organisations of surveyors and valuers, and there is this further point, that most of the cases to which my hon. Friend referred are cases where for certain limited purposes members of these specific organisations are required, but the work affected by this. Sub-section is going on in every town and city in the country. It is not a case, on some special work, of saying, "You must be a member of this particular institution." It is going on all over the country, and the greatest embarrassment would be found if an attempt were made to do as the hon. Member asks. There are undoubtedly cases in which this work is done by those who have not had technical qualifications, and I believe it would be found that in many cases where it is done by those without technical qualifications, in some cases by directors, the work is thoroughly well done and may well be better done in those oases than sometimes by men who would get through the net of a technical qualification. A great deal of care has been taken in seeing what could be done on this matter in this Clause. My right hon. Friend is naturally perfectly prepared, on this as on all other matters, to consider any further representations that may be made, but the matter was considered with very great care before this form was arrived at.
§ Mr. Holdsworth
Some of us contend that the functions of the surveyor and the functions of the director are two separate functions and that they are not able to act in a dual capacity with adequate protection for the borrower.
§ The Attorney-General
I appreciate that point. All that I was saying was that in fact it is found, mostly in the smaller societies, that directors can do this work, and I think it is also found that in many cases they are in a position to do it adequately, competently and honestly. However, as I say, my right hon. Friend is perfectly prepared to consider representations on that point.
§ Miss Wilkinson
Will the right hon. and learned Gentleman answer the point I made on Sub-section (3), as to whether these records should be open to the borrower?
§ The Attorney-General
That is a point that can be raised later. The object of this Sub-section is to ensure that records shall be kept by the society and be open to the inspection of the auditor, and the hon. Lady can certainly raise that point at a later stage. The purpose of the Clause is not to give information to the borrower, but to ensure that proper records are kept which will enable us, among other things, to see that the provisions of the Bill are properly complied with. Some points were raised on the Schedule about the personal covenant. A personal covenant by the borrower is a security. I think one hon. Member was in some doubt about that. The ordinary form of mortgage contains not only the security of the property, but also the personal covenant of the borrower.
Then I think the hon. and gallant Member for South-East Leeds (Major Milner) raised the question of an additional personal covenant, say, by a husband or a parent. The position on the Bill as it stands is this. One starts with the figure which the building society are prepared to lend on the property, say, £750. If they take, for a loan of £750, the personal covenant both of the borrower and of her husband or a parent, that is a personal covenant, on the face of which they are not lending an additional sum, but simply reinforcing it—the personal covenant is always, of course, a mortgage—and they would be entitled to take it; but if, on the other hand, they said, "Here is a woman, and on the security of this property we will lend her £750, but if the father or the husband adds a personal covenant, we will raise that to £800," then that would be treating the covenant by the parent or husband as an additional security within the Bill, and that is at present not within the Schedule. The present position is that if the parent or husband is merely, as it were, duplicating the personal covenant of the borrower, or fortifying it, without raising the amount which would be lent on the property, then it can be given; it is only additional security. But if the personal covenant of a parent or anybody else is going to be regarded as something on which the society would increase the amount of the advance, then it is additional security, and it is not within the Schedule. There is in the Schedule a provision for a guarantee by a third person supported by trustee stocks, funds, or 450 shares, but a bare personal covenant cannot, under the Bill as it stands, be used to increase the amount that would be advanced.
The hon. and gallant Member for South-East Leeds raised a point with regard to the liquidity of resources. That, of course, is outside the scope of the Bill, but I have made some inquiry about it. Any institution whose main business is to lend on long-term loan cannot have its resources as liquid as a lender which lends on short term, but the position is safeguarded by the restrictions on depositors as to the giving of notice Before they could withdraw their money, and the resources are reasonably liquid, having regard to the possible obligations, if the money is coming in week by week in cash from the various borrowers.
§ Mr. A. Henderson
Will the right hon. and learned Gentleman deal with the point I raised about the position of friendly societies?
§ The Attorney-General
That will receive favourable consideration. I come to the main point which was adumbrated by the hon. and learned Gentleman, though not with as much vigour as the hon. Lady sitting behind him would have liked, namely, that this Bill did not go far enough and deal with the problem of the jerrybuilder. No one minimises the problem produced by the jerrybuilders' activities. I do not want to exaggerate the number of jerrybuilt houses; I think the hon. and learned Gentleman suggested 1 per cent. as a possible figure.
§ Mr. Henderson
It was not my figure. I said that an authority had stated that the figure was not more than 1 per cent.
§ The Attorney-General
The hon. and learned Gentleman put it forward because he thought it was a reasonably reliable figure. I agree with what he said when he went on to say that it is no comfort to the one man who is living in a damp and decaying house that 99 other people are living in perfectly dry, properly and well-constructed houses. Nobody minimises the importance of this problem, but the question really on this Bill is whether it is a proper function of a building society to give a warranty as to the quality of the house and a guarantee that the price is reasonable. It is undoubtedly an unusual suggestion that the lender on security should give any such guarantee or war- 451 ranty. We have had speeches from different quarters of the House putting forward different views on this matter. The hon. Member for Chesterfield (Mr. Benson), the hon. Member for Dundee, and the hon. and gallant Member for South-East Leeds all definitely took the view that it was not the function of the building society to give guarantees or warranties of this kind. We in this Bill are seeking that it should be made clear to borrowers not only that that is not their function, but that they are not purporting to do anything of the sort. We are also in this Bill making provision to see that building societies carry on their business on the high standard which undoubtedly societies adopt at present, but we do not think it is proper or practicable to place on them the sort of guarantee or warranty which some speakers have suggested.
§ The Attorney-General
Perhaps the hon. Lady will let me deal with the matter. When the hon. and learned Gentleman who opened the discussion for the party opposite approached this matter, the first suggestion he made was one that had nothing to do with building societies at all. It was that the powers of local authorities should be increased. When one thinks about the problem one sees that it is important to prevent jerry-built houses, whether one is getting a loan from a building society or not. It is not a building society problem. It is a wider problem than the problem of building societies. I noted that the first suggestion made by the hon. and learned Gentleman, and which was made in various forms by other speakers, was that the real solution of the problem would be found in increased powers or the increased use of existing powers by local authorities. I may perhaps express my personal regret that I am not the Minister of Health, but suggestions of this sort are really suggestions to the Minister of Health and beyond the scope of a Building Societies Bill. A suggestion was made by the hon. and learned Gentleman and taken up by one or two others that it might be possible to make a certificate by the National Housebuilders' Registration Council a part of a building society loan. There are, as other Members pointed out, difficulties about a proposal of that kind. 452 Valuable as the work done by that Council is, and although great benefit might flow from an increase in its activities, I doubt whether that is a practicable suggestion.
I have been asked whether I could make any statement on the various suggestions that have been made as to whether something cannot be done about this problem. I have had the opportunity of exchanging a few words with my right hon. Friend the Minister of Health. I cannot do more, and I am sure the House will not expect me to do more, than say that my right hon. Friend, who has heard a considerable part of the discussion, has listened with interest and sympathy to what has been said and will give careful consideration to the suggestions made. He will consider whether there are practicable steps which can be taken to deal with this evil, which, though it may be small measured in percentages, is an evil which everybody would desire to see ended by the most effective means in the shortest possible time. I ought to say a word or two about the Amendment. The hon. and learned Gentleman approved of the Bill in principle, although, if the Amendment were carried, we should lose the Bill, but that is not an inconsistency I will press on him. It was also apparent in the course of his speech that there was not behind him that wholly united front which one likes to feel behind one when one is speaking, and I feel that the Amendment may serve a useful purpose in satisfying to some extent the objectors behind the hon. and learned Gentleman without doing any real harm to the Bill. We are prepared to lend our good offices in order that that useful object may be achieved by dividing against the Amendment.
§ Sir Joseph Nall
Will the Attorney-General consider whether some distinction can be made between societies which are bona-fide lenders and societies which are, in fact, vendors of the property? Is it not in the case of the latter that most of these complaints arise?
§ The Attorney-General
I do not want to repeat what has been said, but there are provisions in the Bill expressly designed to meet what I have described as that identity of interest between the building societies and the builder. We hope that they will be effective and we shall be glad to have any suggestions that will make them more effective.
§ Sir J. Nall
They are in fact vendors of the property and in many cases property which is not new at the time of the sale.
§ Question put, "That the words proposed to be left out stand part of the Question."
§ The House divided: Ayes, 134; Noes, 87.455
|Division No. 76.]||AYES.||[8.48 p.m.|
|Adams, S V. T. (Leeds, W.)||Higgs, W. F.||Reed, Sir H. S. (Aylesbury)|
|Agnew, Lieut.-Comdr. P. G.||Hogg, Hon. Q. McG.||Reid, W. Allan (Derby)|
|Allen, Col. J. Sandeman (B'knhead)||Holdsworth, H.||Remer, J. R.|
|Anderson, Sir A. Garrett (C. of Ldn.)||Holmes, J. S.||Ropner, Colonel L.|
|Anderson, Rt. Hn. Sir J. (Se'h Univ's)||Hopkinson, A.||Rosbotham, Sir T.|
|Aska, Sir R. W.||Horsbrugh, Florence||Ross Taylor, W. (Woodbridge)|
|Baillie, Sir A. W. M.||Hunloke, H. P.||Rowlands, G.|
|Baldwin-Webb, Col. J.||Hunter, T.||Ruggles-Brise, Colonel Sir E. A.|
|Beauchamp, Sir B. C.||Hutchinson, G. C.||Russell, Sir Alexander|
|Boulton, W. W.||Jones, Sir H. Haydn (Merioneth)||Russell, S. H. M. (Darwen)|
|Brass, Sir W.||Jones, L. (Swansea W.)||Salmon, Sir I.|
|Brown, Brig.-Gen. H. C. (Newbury)||Kerr, J. Graham (Scottish Univs.)||Samuel, M. R. A.|
|Bull, B. B.||Lamb, Sir J. Q.||Schuster, Sir G. E.|
|Burgin, Rt. Hon. E. L.||Leech, Sir J. W.||Seely, Sir H. M.|
|Chapman, A. (Rutherglan)||Levy, T.||Shopperson, Sir E. W.|
|Conant, Captain R, J. E.||Liddall, W. S.||Simon, Rt. Hon. Sir J. A.|
|Cooper, Rt. Hn. T. M. (E'nburgh, W.)||Llewellin, Colonel J. J.||Smith, Sir R. W. (Aberdeen)|
|Courthope, Col. Rt. Hon. Sir G. L.||Loftus, P. C.||Somervell, Rt. Hon. Sir Donald|
|Crooke, Sir J. Smedley||Mabane, W. (Huddersfield)||Southby, Commander Sir A. R. J.|
|Crowder, J. F. E.||McCorquodale, M. S.||Snadden, W. McN.|
|Cruddas, Col. B.||Macdonald, Capt. P. (Isle of Wight)||Spens, W. P.|
|Dodd, J. S.||McKie, J. H.||Stanley, Rt. Hon. Oliver (W'm'ld)|
|Dugdale, Captain T. L.||Magnay, T.||Strauss, H. G. (Norwich)|
|Dunglass, Lord||Makins, Brigadier-General Sir Ernest||Strickland, Captain W. F.|
|Edmondson, Major Sir J.||Manningham-Buller, Sir M.||Stuart, Hon. J. (Moray and Nairn)|
|Elliot, Rt. Hon. W. E.||Margessen, Capt. Rt. Hon. H. D. R.||Sueter, Rear-Admiral Sir M. F.|
|Emery, J. F.||Markham, S. F.||Sutcliffe, H.|
|Emrys-Evans, P. V.||Mayhew, Lt.-Col. J.||Tasker, Sir R. I.|
|Errington, E.||Meller, Sir J. S. P. (Tamworth)||Thomas, J. P. L.|
|Fleming, E. L.||Mills, Major J. D. (New Forest)||Thornton-Kemsley, C. N.|
|Fremantle, Sir F. E.||Morgan, R. H. (Worcester, Stourbridge)||Titchfield, Marquess of|
|Furness, S. N.||Morrison, C. A. (Scottish Univ's.)||Turton, R. H.|
|Fyfe, D. P. M.||Munro, P.||Walker-Smith, Sir J.|
|Gledhill, G.||Nall, Sir J.||Wallace, Capt. Rt. Hon. Euan|
|Graham, Captain A. C. (Wirral)||Neven-Spence, Major B. H. H.||Warrender, Sir V.|
|Gridley, Sir A. B.||O'Connor, Sir Terence J.||Waterhouse, Captain C.|
|Grimston, R. V.||Owen, Major G.||White, H. Graham|
|Gunston, Capt. Sir D. W.||Perkins, W. R. D.||William, C. (Torquay)|
|Hambro, A. V.||Pickthorn, K. W. M.||Womersley, Sir W. J.|
|Hannah, I. C.||Pilkington, R.||Wragg, H.|
|Harbord, A.||Ponsonby, Col. C. E.||Wright, Wing-Commander J. A. C.|
|Harris, Sir P. A.||Procter, Major H. A.||York, C.|
|Harvey, T. E. (Eng. Univ's.)||Radford, E. A.|
|Holy-Hutchinson, M. R.||Ramsbotham, H.||TELLERS FOR THE AYES.—|
|Hepburn, P. G. T. Buchan-||Ramsden, Sir E.||Lieut.-Colonel Herbert and|
|Hepworth, J.||Reed, A. C. (Exeter)||Lieut.-Colonel Harvie Watt.|
|Adamson, Jennie L. (Dartford)||Groves, T. E.||Mathers, G.|
|Adamson, W. M.||Hall, G. H. (Abardare)||Messer, F.|
|Alexander, Rt. Hon. A. V. (H'lsbr.)||Hayday, A.||Montague, F.|
|Anderson, F. (Whitehaven)||Henderson, A. (Kingswinford)||Naylor, T. E.|
|Attlee, Rt. Hon. C. R.||Henderson, J. (Ardwick)||Noel-Baker, P. J.|
|Batey, J.||Henderson, T. (Tradeston)||Oliver, G. H.|
|Beaumont, H. (Batley)||Hicks, E. G.||Paling, W.|
|Benson, G.||Hills, A. (Pontefract)||Parker, J.|
|Bevan, A.||Hopkin, D.||Parkinson, J. A.|
|Cape, T.||Jenkins, A. (Pontypool)||Pearson, A.|
|Cluse, W. S.||Jenkins, Sir W. (Neath)||Pethick-Lawrence, Rt. Hon. F. W.|
|Daggar, G.||Jones, A. C. (Shipley)||Poole, C. C.|
|Dalton, H.||Kennedy, Rt. Hon. T.||Price, M. P.|
|Davies, R. J. (Westhoughton)||Kirby, B. V.||Quibell, D. J. K.|
|Davies, S. O. (Merthyr)||Kirkwood, D.||Richards, R. (Wrexham)|
|Dobbie, W.||Lathan, G.||Riley, B.|
|Dunn, E. (Rother Valley)||Lawson, J. J.||Ritson, J.|
|Ede, J. C.||Leach, W.||Robinson, W. A. (St. Helens)|
|Edwards, Sir C. (Bedwellty)||Leslie, J. R.||Sexton, T. M.|
|Gallacher, W.||Lunn, W.||Shinwell, E.|
|Gardner, B. W.||Macdonald, G. (Ince)||Simpson, F. B.|
|Garro Jones, G. M.||McEntee, V. La T.||Smith, E. (Stoke)|
|Grenfell, D. R.||McGhee, H. C.||Smith, T. (Normanton)|
|Griffiths, G. A. (Hemsworth)||MacLaren, A.||Stewart, W. J. (H'ght'n-le-Sp'ng)|
|Griffiths, J. (Llanelly)||Marshall, F.||Summerskill, Dr. Edith|
|Taylor, R. J. (Morpeth)||Watkins, F. C.||Woods, G. S. (Finsbury)|
|Tinker, J. J.||Watson, W. McL.||Young, Sir R. (Newton)|
|Tomlinson, G.||Westwood, J.|
|Viant, S. P.||Wilkinson, Ellen||TELLERS FOR THE NOES.—|
|Walkden, A. G.||Williams, T. (Don Valley)||Mr. Whiteley and Mr. Charleton.|
Question put, and agreed to.
§ Bill committed to a Committee of the Whole House for To-morrow.—[Lieut.-Colonel Harvie Watt.]