Mortgage Interest Rates (Hansard, 7 May 1968)

§ 11. Mr. Tom Boardman
asked the Minister of Housing and Local Government what representations he has received about the current mortgage interest rate; and whether he will make a statement.

§ 18. Mr. Gardner
asked the Minister of Housing and Local Government what 197 recent discussions he has had with building societies regarding interest rates; and if he will make a statement.

§ 34. Mr. William Price
asked the Minister of Housing and Local Government what discussions he has had with building societies about a change in mortgage rates; and if he will make a statement.

§ 46. Mr. Murray
asked the Minister of Housing and Local Government what discussions he has had with the Building Societies Association about their decision to increase the interest rate to 7⅜ per cent.

§ 50. Mr. Lubbock
asked the Minister of Housing and Local Government if he will make a statement about the increase in mortgage interest rates announced by the building societies on Saturday, 20th April.

§ 53. Mr. Alexander W. Lyon
asked the Minister of Housing and Local Government what action he proposes to take in relation to the proposal of the building societies to increase the rate of interest for home loans by ½ per cent.

§ Mr. Greenwood
I maintain continuing contact with the Building Societies' Association about the availability of finance for house purchase. Building societies need to pay interest rates to investors which will attract sufficient funds to meet the demand for mortgages for house purchase. This in turn affects the rate which societies charge for mortgages. There has been a very sharp fall in the amount of money available for lending, and the recent recommendation of the Building Societies' Association for increases in borrowing and lending rates was made because they considered this necessary to avert a mortgage famine. This is a matter for the judgment of the Association. I am glad to note that some societies have found it possible to postpone the raising of the mortgage rate to existing borrowers. I am sure that societies will wherever possible give existing borrowers the option of extending the mortgage period instead of increasing monthly repayments.

§ Mr. Boardman
Does not the right hon. Gentleman realise that, as a result of these very high interest rates, the average borrower, after tax relief, is having to pay 10s. per week more than in October, 1964, or, if his term has 198 been extended, the liability may be extended by up to seven years? How does he reconcile these facts with his radio broadcast last night boasting—[Interruption.]—of the Government's record on housing?

§ Mr. Speaker
Order. Questions and answers are getting rather long.

§ Mr. Greenwood
I did not catch the last part of the hon. Gentleman's supplementary question. But hon. Members opposite will have to make up their minds whether they want money to be available for private house purchase or not. If they do, then they must accept also that attractive terms must be offered in order to bring money into the building societies.

§ Mr. Gardner
Does not my right hon. Friend agree that the time has come for a full-scale investigation into the operations of building societies? In the meantime, will not he suggest to them that, in return for their holding down interest rates, the Government will underwrite the difference between the chosen rate and the rate at which they borrow?

§ Mr. Greenwood
I cannot give the assurance sought by my hon. Friend in the latter part of that supplementary question. As to the first part, I know of no evidence to suggest that the sort of inquiry he has in mind would serve any useful purpose. The National Board for Prices and Incomes investigated the building societies in autumn, 1966, and since then they have had their own Hardie Committee investigating the situation. As far as I know, the situation is satisfactory so far as the problems considered by the Board and the Hardie Committee are concerned.

§ Mr. William Price
What, in the longer term, does my right hon. Friend regard as an acceptable level of interest rates?

§ Mr. Greenwood
The lowest possible.

§ Mr. Murray
Does not my right hon. Friend agree that the ½ per cent. rise is greater than the 3½ per cent. norm for incomes? Will he suggest to the building societies that they look at their investment policy? Will he also suggest to them that, after they have raised interest rates, it does not do their public image any good to lunch at the Dorchester on our money?

§ Mr. Greenwood
I am certain that the building societies are well aware of the need to keep their investment policy under constant review. I remind the House that, despite the difficulties they have been going through, their lending has been at a very high figure in the last three months.

§ Mr. Lubbock
Does not the right hon. Gentleman agree that the decision of the building societies was unavoidable in view of the generally high interests rates prevailing and the lack of confidence in fixed interest securities engendered by Government policy over the last three years? Will he enter into discussions with the building societies so that, over the long term, policies can be evolved whereby borrowers do not suffer such fluctuations, which put them into great difficulties?

§ Mr. Greenwood
I maintain constant discussion with the Building Societies' Association and this is one of the points which I shall discuss with it at the appopriate moment. In relation to interest rates, I am sorry that the hon. Gentleman spoiled an otherwise excellent supplementary question by attributing some of the responsibility to the Government. To some extent, the situation is due to international monetary forces beyond the control of any national Government.

§ Mr. Alexander W. Lyon
Is my right hon. Friend aware that it does not really meet the case to say that the period of repayment can be prolonged, since where there is a substantial increase in interest charges the principal sum in the end can be greater than the amount originally borrowed? The difference will have to be found from somewhere. Could this not be phased like rent increases so that a maximum increase of, say, 7s. 6d., was charged?

§ Mr. Greenwood
That would not be practicable. Because of the proposal to spread out repayments many people will get more concessions through Income Tax relief and consequently any damaging effect will to some extent be offset.

§ Mr. Marten
Is not the extension of repayment disreputable economic conduct? Surely, at the end of the day, the borrower who hopes to retire on pension will have a very substantial amount of 200 capital to repay purely as a result of the Government's high interest policy?

§ Mr. Greenwood
That is not entirely due to the Government's short-term high interest policy. I explained as much to the hon. Member for Orpington (Mr. Lubbock). But it is important that, at a time of particular pressure on salaries and incomes generally, it should be the policy of the Government to keep down all increases of this kind. If it means phasing repayments over a longer period, that will relax pressure in the immediate future.