HC Deb 11 April 1963 vol 675 cc1559-72

3.58 p.m.

Mr. Norman Pannell (Liverpool, Kirkdale)

I find myself in some difficulty in opening the case which I wish to put before the House, as at the moment there seems to be little opportunity for a suitable reply from the Government Front Bench, unless my hon. Friend the Parliamentary Secretary to the Ministry of Education, who is there at the moment, has had allocated to him the responsibility of replying to this debate.

I am grateful for the opportunity of placing before the House the difficulties which have been experienced in Liverpool in the formation and operation of a housing association formed under the provisions of the Housing Act, 1961. The House will know that Section 7 of that Act empowers the Minister of Housing to grant advances up to a sum of £25 million for housing associations registered under the Industrial and Provident Societies Act which undertake to provide housing for letting according to schemes approved by the Ministry of Housing.

Subsection (8) of that Section specifically states: In this section references to the provision of housing accommodatian are references to the prevision of housing accommodation whether by building new houses, or by the conversion or improvement of existing houses or other buildings. It was in that aspect of housing associations that I was chiefly interested.

The House knows that Liverpool suffers from an appalling housing problem. There are over 40,000 applicants still on the waiting list, and in the Cathedral area of the city there are large old Victorian houses which have been used for multi-occupation in circumstances which have cause a great deal of dissatisfaction locally. Admittedly the Housing Act gives power to local authorities to deal with this sub-standard accommodation in multi-occupied premises but, for reasons into which I need not go here, the Liverpool Corporation has found itself unable to take any material steps in that connection.

I therefore conceived the idea of forming a housing association to acquire some of these large old buildings and convert them into reasonable accommodation with modern amenities, under the provisions of the Act. Before I took any positive steps in the matter, I had discussions at the highest level with the Ministry of Housing and Local Government and with the National Federation of Housing Associations, which acts for the Ministry in this matter.

The assurances that I was given were sufficiently encouraging for me to proceed, and I therefore gathered around me a number of prominent Liverpool business men, each an expert in his own profession, to assist me in the formation of this association. There was a leading lawyer, a prominent architect, a quantity surveyor, an estate agent, an accountant, and so on, so that I should be able to supplement my own meagre knowledge with expert advice, and all these gentlemen agreed to give their services free.

We decided to embark on the project, but we experienced tremendous difficulties in forming the Association in the first place. We were in constant touch with the National Federation of Housing Associations and with the Ministry of Housing and Local Government overcoming the difficulties in regard to the formulation of the rules which would enable us to take advantage of the loan provisions of the 1961 Housing Act. We were feeling somewhat frustrated by the time these negotiations ended, for it was not until July, 1962, four months after we had first discussed and decided on this project, that the Association was registered with the Registrar of Friendly Societies.

We thought then that the way was clear, and there came to our notice a house exactly of the type that we had in mind. It was an old Victorian house in sound structural condition, but needing a few repairs. It had been used for multi-occupation and the interior of the building was in an indescribably filthy condition. Anyhow, it seemed likely and possible that it could be converted, and we therefore took an option on the house, the cost of it being £1,650, on a 999-year lease—which appears to be the custom in Liverpool—and a ground rent of £4 per annum.

Having taken this option, we applied to the Ministry, through the National Federation of Housing Associations, for a loan to pay the purchase money. To our surprise the Federation queried our right to borrow under the Act. This was indeed a surprising development, because we had discussed our objects with the Federation and had formulated the rules in accordance with its advice after long and voluminous discussions and correspondence.

It had approved the rules, the effectiveness of which it now queried. This occasioned further long delays, much correspondence, and visits to the National Federation and to the Ministry. It was only with some insistence on my part that these difficulties were finally overcome and on 21st September we were advised that the Ministry of Housing accepted in principle the validity of our scheme and that the scheme qualified for loan under the Act.

We then prepared plans for the conver- sion of the house. The object was to have three self-contained fiats with all modern amenities. Since there was an inside staircase it was necessary to provide an outside staircase which also served as a fire-escape. The total expanses on repairs and conversion were estimataed at £5,000. I am sorry to weary the House with these figures, but it is important to give them. To this sum had to be added the cost of the building, £1,650, and from the total thus arrived at there was deductible an estimated £1,200 improvement grant payable by the local authority. In short, the net amount was £5,450 and the anticipated rents were £460 per annum. As far as we could judge, this sum would be more than sufficient to amortise the loan under the Act from the Ministry of Housing of £5,450 at the then prevailing rate.

In our innocence we thought that the criterion was that if we could prove that this was a viable proposition from our point of view and that we could acquire the property and rent it at rentals more than sufficient to amortise the loan, that loan would be forthcoming. We therefore applied through the Federation of Housing Associations for loan approval. There was some delay in getting the forms, because this apparently was the first project of its kind under the Act. Eventually the forms were forthcoming and we completed them in support of our application for a total loan of £5,450 and an advance of £2,000 to cover the cost of the building itself and the initial expenses.

We had overlooked, however, and indeed we had not been aware or made aware of one significant point. Attached to the forms there had to be a valuation by the district valuer, and to our surprise the district valuer placed a value on the house after conversion of £3,000. It was impossible to argue with the district valuer, who was working within his competence. It is admittedly the case that buildings converted in Liverpool do not attract a high value, but it was surprising to find that the value placed on the building was little more than five years' rental. We did not think, however, that this would prevent the loan by the Ministry of the full amount for which we asked. Unfortunately, the Ministry decided that it could not advance a loan greater than the value placed by the district valuer on the building after conversion.

We were therefore limited to a loan of £3,000, against an anticipated expenditure of £5,450. The gap of £2,450 was very unfortunate for the Association, because obviously the option would have lapsed long before if we had not taken steps. We had already purchased the building through one member of the Association who had done so on his own responsibility on behalf of the Association. Being fully committed to the scheme, we argued with the Ministry that it should change its ruling and grant a full loan on the ground that the scheme was viable in point of rental. Unfortunately, the Ministry found itself unable to accede to the request.

We had to think over the matter again. On 5th November, 1962, now some eight months after we first had the project in mind, and several months after the formation of the Association, a Ministry of Housing architect visited the premises we had purchased and, with the experts of the Association, a new scheme was drawn up. This time, instead of three self-contained flats, there would be six flatlets. This would eliminate the need for an outside staircase, although some modified form of fire escape would be necessary.

This new scheme had two advantages. The costs were reduced from an estimated £5,000 to £4,500 and a much higher rental income would be obtainable from the six flatlets than from the three originally intended. The case was re-submitted to the district valuer, and he agreed to increase the value after conversion from £3,000 to £3,750.

This was certainly something gained. We had reduced the cost of conversion and increased the amount which presumably the Ministry would now be prepared to lend, but, of course, the gap was still considerable. We were very much annoyed that we had not been able to obtain the whole amount that was needed for completion of the scheme. Another great difficulty arose. When the application under the new scheme was submitted by the Association through the National Federation of Housing Associations to the Ministry, the National Federation declined to recommend it to the Ministry.

This was a most surprising development, because we had got over this difficulty in regard to the former scheme, which was much more viable from the loan point of view than the one now submitted. This occasioned further lengthy correspondence and personal visits both to the National Federation and to the Ministry.

Months passed before any conclusion was reached. It was not until 8th February, 1963, that is, eleven months after we had met to form the Association, that these difficulties were overcome. We were invited to submit a fresh application for a loan but, as a pre-condition of the loan, the Ministry forwarded a schedule of requirements calling upon the Association to produce no fewer than twenty-nine documents in support of its application. I am not a legal man I do not know what documents would normally be required in these cases, but I am informed by a lawyer in whom I have confidence that in normal cases only five documents would be required and that the extra twenty-four were required apparently only by the Ministry of Housing's solicitors.

However, we eventually managed to supply all the documents required and then submitted the case to the Ministry for a loan agreement. At the same time, we put out tenders for the conversion of the building into six flatlets. The lowest tender did not differ much from the estimate. It came to £4,560 compared with £4,500 that the Association's experts had estimated. I do not want to weary the House now with details of the figures, but on the same basis of adding the cost of the building itself and deducting improvement grants we found that we needed a net sum of £4,900, against which the Ministry had agreed to lend us only £3,750. The gap, though much less than on the original scheme, was still £1,150.

The Association having no means of its own, since I was personally responsible for bringing these gentlemen together and giving them so much bother in the matter and since the Association was committed to the implementation of the scheme, I felt obliged to offer my personal guarantee for the amount that was still required.

An interesting point to note is that had the Ministry agreed to advance the whole of the loan of £4,900 which was needed, the amortisation of that loan would have amounted to only £314 a year. If we added the ground rent and other costs, we estimated that the total outgoings would be £438 a year. That would include management expenses and ground rent, and the notional rental of £2 10s. a week, easily obtainable for the larger flats, and £1 10s. a week for the smaller ones would have brought in £702 a year, giving a margin of over £250 a year. Despite that, the Ministry could not see its way clear to give us a loan for the full amount. Clearly, if it had done so, we would not have charged the rents that I have mentioned; they would have been much lower, probably in the region of £1 15s. a week for the larger flats and as low as 27s. 6d. a week for the smaller flats. Since, however, we are now compelled to borrow a part of the money from other sources, the cost rents which we shall eventully have to apply will be significantly higher than that.

That is the whole story. It is now over a year since it was first decided to form this Association. The first project is not yet under way. It is very much to be hoped that there will be no further complications and that the loan, at least for the initial charges, will soon be forthcoming, but there is still no certainty about that.

Apart from the financial considerations, which are serious and disconcerting, the difficulties and prospects that have been encountered have been so formidable that those associated with the scheme, including myself, have been completely discouraged and disillusioned. There seems little prospect of embarking on any similar schemes of this character, and it seems likely that this project, conceived in high hope in an endeavour to improve the appalling housing conditions in Liverpool, will founder.

I think that what I have said demonstrates quite clearly that this part of the Housing Act, 1961, in regard to housing associations formed for the purpose of conversion, is quite inoperative—at least it is inoperative in Liverpool—unless the Ministry is prepared to relax its rules in regard to the amount of loans that it is prepared to advance. In view of the great need for accommodation at this time in Liverpool, I conclude by expressing the hope that the Minister may consider steps to remedy a most unfortunate situation.

4.18 p.m.

The Joint Parliamentary Secretary to the Ministry of Housing and Local Government (Mr. F. V. Corfield)

My hon. Friend the Member for Liverpool, Kirk-dale (Mr. N. Pannell) has outlined the difficulties which he has had in launching a scheme which we all agree has a very worthy social purpose. It was the merits of that social purpose which influenced my right hon. Friend and myself to take a personal interest in the matter from a very early stage. We were also influenced by the fact that, this being the first project of this type, we were particularly anxious that the whole movement of housing associations throughout the country should in no way be inhibited by unfortunate decisions over the first case. It was for these reasons that we took particular trouble to look into this in every detail and to be as helpful as we possibly could.

I should like to pay tribute to the immense time which has been spent by my officials in trying to help my hon. Friend in this project. We sympathise with his difficulties and we appreciate that in the light of the enthusiasm shown by my hon. Friend and his colleagues some of these difficulties are bound to seem frustrating, and perhaps unnecessarily frustrating.

But I must put on record the facts as we see them, even though this may mean some repetition of what my hon. Friend said. His first application was received by my Department on 17th October last year. I think that the Housing Association's application to the National Federation was dated 14th October, three days previously. I underline that the estimated cost of acquisition and conversion was £6,650. The loan applied for, after the improvement grant had been taken into account, was £5,450. As my hon. Friend said, the District Valuer's assessment of the value of the house after conversion was £3,000.

My hon. Friend has given figures indicating that the rental which he could reasonably expect to achieve would give more than adequate coverage for the loan liabilities on an annual basis, but in valuing property from a capital point of view there are other things to be taken into account. There is the general nature and character of the neighbourhood, and there is also the expected life of that type of property concerned within that neighbourhood. If it is a neighbourhood which may be, to use the common expression, running down, it may well be that those rents could not be continued after, say, ten years. All these matters affect the valuation and must be taken into account. We should be wholly failing in our duty if we did not take them into account.

My hon. Friend suggests that his experiences indicate that the provisions of the Act mean that projects of this sort are ruled out in Liverpool. He knows more about the conditions in Liverpool than I do, but surely all that his experiences prove is that in a particular area, where the maximum figure which can be put on the capital value of the property after conversion is considerably less than the total cost, then the loan must be limited to the capital value. That, I suggest, is a set of circumstances which is bound to vary from locality to locality.

But I am sure that my hon. Friend agrees, and I hope that the House agrees, that we should put ourselves into a completely indefensible position before the Public Accounts Committee if we provided a total loan in capital exceeding the value which the District Valuer, with all his experience, put on the house after the conversion had been done.

As my hon. Friend said, the proposal was put to my right hon. Friend only a week after its reception in the Department. Being very reluctant to damp the Association's enthusiasm, particularly in view of the fact that this was the first application for a project of this size, my right hon. Friend gave a good deal of personal attention to it. As a result of conversations which then took place, the Association subsequently altered its scheme, as my hon. Friend said, to make a conversion to provide six flats instead of the three originally intended. To help my hon. Friend, an architect of my Department went down and helped to advise how this could be done so as to increase the value and decrease the proportion that the loan, or the required amount of money, would bear to that value. Even after this, however, and with a cutting in cost of about £800 previously allowed for a fire escape which it was now proposed to omit, the loan requirements were reduced to £3,650, but the District Valuer remained of the opinion that the valuation could still not be put at more than £3,000. This I explained to my hon. Friend in a letter dated 20th November.

Then we had a second application, again based on six flats, which enabled the District Valuer to assess the final value of the house at £3,750. On the basis of that, apparently, an application for a loan was made for £3,770, the National Federation having passed the application direct to the Ministry because it felt that at that type of figure it was still not able to accept it itself.

Here again there was another difficulty, which certainly was not a difficulty arising in my Department, because when the plans were gone into, the application submitted, could not be reconciled with the plans on which the District Valuer had based his report. The description of what was to be provided differed substantially from his description. There was a discrepancy of over £1,000 between the cost of conversion as put to the District Valuer and the cost as put to the Department.

This inevitably led to further discussion and negotiations before we could consider a further application for loan. Most of these discrepancies were eliminated at a meeting between officers and my hon. Friend in his capacity as chairman of this Association and in correspondence which took up the period up to 21st January this year. The main saving was cutting out the fire escape on the strength of an assurance that the Liverpool Corporation would be content under its byelaws with a simpler and cheaper means of escape. Our architects advised that the scheme should not be approved until we were satisfied as to its compliance with the Corporation's requirements, not only with regard to the fire escape, but also with regard to precautions against fire and conformity with the other byelaws which might be relevant.

Nevertheless, instead of delaying further approval, and knowing that my hon. Friend had already been in the situation in which he either had to buy or miss this property, we approved the scheme in principle, subject to two conditions. These were, first, that any advances over and above the actual cost of the property—that is, advances towards the cost of the work of conversion—would be dependent on the production of evidence that the Corporation's requirements as to byelaws and fire precautions were satisfied and, secondly, that the Minister's advances would not exceed the District Valuer's valuation of the property, so that any money required above that sum would have to be met from other sources.

On 14th February, in anticipation of the Association's acceptance of these conditions, we instructed solicitors to prepare a loan agreement. The solicitors were given the absolutely standard instructions to satisfy themselves as to title. It is very largely, if not entirely, the difficulty in doing that which has led to the subsequent delay.

I am sure that the House would agree that we should be hopelessly irresponsible if we did not satisfy ourselves as to title in exactly the same way as any other mortgagee would do. The plain fact is that the Association had bought a leasehold property subject to a covenant which was not consistent with the conversion and use of the property which it proposed. This is one of those covenants which probably, by negotiation, will readily he resolved; and I understand from my hon. Friend the Member for Liverpool, Kirkdale in private conversation that his information is that this has either just happened or is about to happen. I am glad to hear that.

We should be in an indefensible position before the Public Accounts Committee if for one moment we advanced money on an incomplete title. In this connection, my hon. Friend mentioned that he had had about 29 forms. I do not know which forms are involved, but, having made inquiries, I thank that I would probably have to get in touch with the solicitors in Liverpool to obtain the list. I can assure my hon. Friend that when we compile, suggest or send out forms we are guided by a desire to make things simpler rather than more complicated. I was interested to receive a letter from another association, in which another hon. Member is interested, stating that it found dealing with my Ministry much quicker than dealing with any of the ordinary sources of finance credit in the country.

I can assure my hon. Friend that of the list of forms I have seen a number of them are purely explanatory in content, designed to make it clear to the borrower exactly where he stands, before the final negotiations are entered into—something which I think is not done by most of the building societies and insurance companies to the same extent—and we hope that they are helpful. I can assure him that this is our objective and if either he himself or his solicitors will let us have a comment on these forms and an indication of those which they regard as time wasting, unnecessary or capable of simplification, we shall be only too pleased to look into the matter and to streamline our procedure, because we are anxious for projects of this sort to go ahead.

It is implicit, in a project of this or any other sort which involves borrowing money, first that the security should be right, and, secondly, that the title should be right. This is something which is, I should have thought, absolutely inherent in any ordinary business transaction. For the Government, with their additional responsibility as trustee for public money, to waive those requirements would be thoroughly indefensible. I can assure my hon. Friend that an enormous amount of time and a great deal of good will on the part of my Department has gone into helping or trying to help him to overcome these difficulties.

Mr. N. Pannell

My hon. Friend will realise, of course, that many months of delay were caused by his agents, the National Federation of Housing Associations, before the matter came to the Ministry. That considerably increased our sense of frustration.

Mr. Corfield

I appreciate that, but one must realise that if one puts forward to a Government agency, if that is the word, a proposition which involves borrowing nearly twice as much money as the valuation of the property justifies as a security, one is apt to run into difficulties. I do not want in any way to show any lack of sympathy with my hon. Friend's frustration, but I have been most impressed with the efforts which have been made from our end to help.

I feel that criticism directed at us, directly or indirectly, is unjustified. We are, of course, always looking at any provisions in legislation that appear to frustrate what we wish to have carried out, but I cannot believe that we can go further in the direction of relaxing the security required or the title required. To do so would, in many cases, be to convert loan to grant. That is not the object of the exercise, and it is certainly not that for which we have the authority of Parliament.

Question put and agreed to.

Adjourned accordingly at twenty-four minutes to Five o'clock till Tuesday, 23rd April, pursuant to the Resolution of the House of 9th April.