§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Stoddart.]
§ 2.56 a.m.
§ Mr. Frank Allaun (Salford, East)
This is the first time that the issue of red-lining or blue-zoning has ever been debated in the House of Commons. What it means is that a whole area, usually an older, inner city area, is deprived of mortgages by most or all building societies. It is so called because the societies draw a line on the map round a part of the town or city and let their managers know that applications from that area will not be granted.
For nine months I have been collecting evidence that this really does happen and I have several voluminous files of unassailable material on the matter. It has come from residents' associations, university studies, solicitors and individual victims of the practice. It has disastrous results. It so accelerates the deterioration of a declining area as to prevent its being saved and to turn it into a virtual ghetto. In America the process has gone so far that the centres of many cities have been turned into 1680 urban deserts. We can and must prevent that from happening here.
In some parts of our cities there are whole streets with "For Sale" notices up. The owners cannot obtain purchasers—not because there are not families desperately anxious to buy them but because they cannot obtain a building society mortgage. Sometimes these houses are left empty. Within a short time they are vandalised by children, and lead thieves steal the lead from the roof and the water pipes. Rubbish is dumped inside them. Before long they are complete write-offs and the councils have to demolish them.
Nothing could be more galling to families in great housing need than to see good houses becoming derelict and then being destroyed. In some cases the only purchasers who can afford to buy them are racketeering landlords who do not improve the houses but, instead, cram in as many tenants as they can and exploit them with exorbitant rents.
Not only are those houses afflicted but the whole neighbourhood is infected. It runs down rapidly, soon becoming an urban wasteland.
The irony of it is that most would-be mortgagors put their savings into building societies. These funds are invested by the societies in providing homes for the more prosperous families in the richer areas.
I wish to give some evidence of the harmful and iniquitous practice of redlining, though in a short speech of this kind I have time for only a few examples. Then I want to explain why I think that this building society blight is being inflicted; next to show how the recent Government cuts have worsened the situation; and, lastly, to put forward a solution to the problem.
I now wish to quote a letter that I have received from Hull, from a man 1681 living in the heart of the inner city area. He says:
§ "1. Up to June 1976 and after eleven months of the special Government-cum-building society schemes operation the three allotted building societies have managed to part with 72 mortgages. (Before circular 64/75 Hull District Council admit to having dealt with an average of 100 applications per month thus implying that over a similar eleven-month period they might have expected to deal with 1,100 applications.) 72 mortgages hardly fills the gap.
§ 2. Those areas of Hull which for no apparent reason were never able to attract mortgages from private building societies remain. I might add these areas are not subject to clearance, or road proposals, and are in fact zoned for residential development. The building societies still pursue policies, even under the government agreed scheme, of identifying 'declining' areas. This means if a property is situated in one of these areas that irrespective of the properties condition or the applicants' financial status no mortgage is available.
§ 3. The 17,000 housing waiting list remains.
4. There has been no acceleration in the revival of Hull's inner city area, just further stagnation.
Why is it that private building societies will not extend mortgages to these mainly inner city areas, even after having entered into an agreement with central government to 'fill the gap'?
It cannot be the individual applicant's financial status as the building societies never proceed far enough with an application to investigate such matters.
Neither is the condition of the property, which is the subject of the application as the societies never proceed far enough to necessitate the carrying out of a survey.
§ Next I turn to Liverpool in general and the Liverpool 8 district in particular. This case was brought to me by my hon. Friend the Member for Liverpool, Garston (Mr. Loyden). A fairly top-level, highly-paid civil servant, who is a friend of his, wished to buy a house in this district. Because of its location the application was refused by every building society approached. Eventually the applicant obtained a loan through an insurance broker but had to pay a much higher rate of interest than would have been the case if a building society mortgage had been obtained. I instance this case for this reason: it could not have been through any lack of income or trustworthiness that this official was refused a loan. It was because of the location of the house.1682
§ The best documented evidence I have received is from Birmingham where Camilla Lambert of the Centre for Urban and Regional Studies has produced a report of 73 foolscap pages. It shows, complete with interviews with building society managers and surveyors, how whole neighbourhood are excluded from consideration for loans. Handsworth and Sparkbrook are but two of the areas where many societies will grant no mortgages at all.
§ I have received two long and detailed memoranda about Leeds from the North Hyde Park Residents Association and the South Headingley Community Association, both representing residents in Leeds 6. They quote 23 cases with names, addresses and interviews of alleged refusal by building societies of mortgages on houses because of their locality. What is interesting in this locality is that many of the applicants for mortgages are eminent and highly-paid staff at Leeds University who want to live nearby and who are prepared to spend money on improving the houses and, thereby, the district. So one again, the refusal cannot be because they are potentially unreliable interest payers.
Next I have here a letter from a Manchester solicitor. He says
'I find it heartbreaking that young couples and families desperately needing a home are denied the chance to purchase small terraced houses that are lying empty around our cities. We appear to have a homelessness problem on the one hand, and yet a great deal of property decaying because it is blighted by the building societies.
In Manchester I questioned society after society about lending on low income property last year when I could see local authority funds drying up, and the answers were illuminating. Three miles from the city centre is blighted.
There are a lot of terraced houses that will continue to provide good homes when some of the jerry-built new stuff is falling down.
The building societies innocently explain that they are in the hands of the surveyors. The Corporation surveyors at least had the guts to say when houses are overpriced and to insist on repairs being done to bring them up to standard.
The small people are paying up to 22 to 28 per cent. on merchant bank mortgages and tied up with life policies which they can't afford because they can't obtain a house otherwise.
§ He has sent me 15 addresses of which he has personal knowledge which have been referred to building societies and turned down—in many cases without 1683 even an inspection by the societies. In most of these the societies—which he names—did not like the area. They included streets in Salford, Pendleton, Cheetham Hill, Clayton, Irlams, the Height, Monton, Gorton, Longsight, Heaton Park, Levenshulme, Moston and even Withington and Didsbury. That shows that in these cases it is not just a particular district, but a particular type of house which is rejected. I have reports of this evil practice from London—particularly Lambeth and Islington—Leicester, Loughborough, Newcastle and Huddersfield. No doubt the situation is the same in other areas of which I am not aware.
§ Why do the societies adopt this policy? They say that it is due to lack of security in such areas and to threats of local government redevelopment there, but often these are improvement areas where the council assures buyers that the houses will stand for 30 years or more.
§ Or they say that the borrowers are more likely to get into arrears, but I have quoted cases of well-paid applicants and in any case, as we say in Lancashire "There's nowt so safe as houses." The societies have the security of the houses. Local authorities are willing to lend on them and hardly ever do building societies or councils lose on their lendings.
§ Or the societies say that they depend on the advice of chartered surveyors, but the surveyors work on the same kind of restrictive approach and they know what the societies want. I also suspect that it is much easier and more profitable to survey and grant one big mortgage on one expensive house in the plusher suburbs than on several small ones in the less-well-off areas.
§ Until recently, the family who failed to secure a building society mortgage was often able to get one from the local authority which did not object to older houses and often granted 100 per cent. mortgages. Then last year, the Government cut by £100 million the amount the councils could lend.
§ The Government, with the best of intentions, entered into an agreement with the building societies under which the societies would make good this sum by lending it on applications for mortgages 1684 sponsored by councils. The scheme has been a flop. Recently, the Building Societies Association admitted that only one-third of the sum had been advanced and I believe that many of the applications were ones that the societies would have accepted in any case.
§ This summer, as part of the public expenditure cuts, the Government have knocked a further £150 million off the councils' permitted lending total and have said for a second time that they hope that the building societies will compensate for it. That is wishful thinking.
§ So what is the solution? It is that the Government require the societies to make 10 per cent, of their advances available to councils, so that they, in turn, can grant mortgages in these districts and on this type of house to applicants who cannot get them from the societies.
§ The building societies are now lending at the rate of £6 billion a year. Surely it is not asking too much for them to devote 10 per cent of their funds to the poorer half of the population. It is up to the Government to bring this about—and quickly.
§ 3.8 a.m.
§ The Under-Secretary of State for the Environment (Mr. Ernest Armstrong)
My hon. Friend has raised the important issue of building societies and the availability of money for people in desperate need. I can assure him that my Department is very concerned about the problems of inner city areas and that this is the subject of constant study. It has become increasingly clear that demolition and redevelopment cannot be regarded as the only appropriate answer to the whole complex range of housing problems. The Government are deeply committed to a policy of making the best possible use of the existing housing stock and adopting a flexible and sensible approach to the renewal of rundown areas.
We want to avoid the break-up of communities. We take full account of the needs of individuals and families and the physical condition and potential of the property concerned. Therefore, we are placing emphasis on the improvement and rehabilitation of older property.
1685 We have given special attention to pre-1919 property. We have discussed this problem with the Building Societies Association as well as with local authorities. We have worked with all concerned on the development of the concepts of housing action areas and priority neighbourhoods, introduced in the Housing Act 1974, and have made more money available for taking unfit houses in the private rented sector into social ownership. The size of this task is so great that we are looking simultaneously towards new ways of achieving our objectives, and studies are in hand to explore how forms of social ownership and management might be devised to enable faster progress to be made.
I appreciate that local authority mortgage lending, which unfortunately has had to be cut, has been a very important factor in dealing with the problems that my hon. Friend has highlighted in this debate. It has been an important mechanism by which local authorities have encouraged individuals to put effort and money into the renewal of property which otherwise—and certainly previously—might have decayed. We shall be discussing with local authorities how their available allocations, which unfortunately, as I say, have had to be reduced, can best be used to meet the needs of the areas to which my hon. Friend has been referring, the areas of housing stress.
Already local authorities devote their funds to closely defined categories of people and property, the main category being older property. Indeed, in our advice to all authorities we are stressing the fact that their loans should be to those who would not normally be covered by building society loans.
I turn to the key question of the effectiveness of building society help. My hon. Friend constantly draws our attention to this problem. I should like to comment first on his proposal that building societies should be required to lend 10 per cent. of their funds annually to local authorities for them in turn to lend to their own customers. I must say to my hon. Friend that there is a fundamental difficulty about this proposal. Even if local authority lending were to be funded in this special way, it would still have to be reckoned within the total of public borrowing and public expendi- 1686 ture. The overwhelming need for a reduction in public sector borrowing and expenditure was what the Chancellor's package was all about, so there can be no question, in the present financial situation and under the present arrangements, of measures which run directly counter to this policy.
However, my Department has, in fact, initiated urgent discussions with the Building Societies Association. I know that there is considerable controversy about how far the building societies have moved, but I assure my hon. Friend that some movement has taken place.
Looking back over the history of building society help in making up the shortfall in local authority lending, to which my hon. Friend referred, we have the £100 million scheme under which societies agreed, when restrictions on local authority lending were first imposed in 1975–76, to make up to £100 million available to local authority nominees. The scheme has been much criticised. It was slow to get off the ground. It has been criticised particularly by those. who expected building societies to take every applicant put forward by local authorities. However, the scheme was never intended to put building societies in the place of local authorities. It was always intended that societies would apply their normal lending criteria, waiving only the usual requirement of societies that borrowers should also be investors.
It is worth considering what an undertaking such an operation was for the building society movement. It is not a single entity but an amalgam of over 400 independent societies, and this was the first time that the movement as a whole had co-ordinated action for such a purpose. Therefore, it was not really surprising that there should have been initial problems and that the scheme got off to a rather slow start, but we have now seen over £50 million allocated within the scheme itself, and a considerable amount of extra lending on older properties is being done by building societies.
For example, the percentage of building society borrowers obtaining mortgages on pre-1919 dwellings has risen from 17 per cent. in the second quarter of 1975 to 23 per cent. in the first quarter of 1976. I appreciate the limitations of statistics, but it is clear that there has 1687 been a substantial increase in lending by building societies at the older end of the market, and the general import of those figures should not be overlooked.
But the most important development to arise from that first scheme is the constantly improving liaison between building societies and local authorities—both centrally in the talks between the Building Societies Association and the local authority associations and locally, in the close working arrangements that have developed in many places making the £100 million scheme a vital contribution to the local housing scene.
Only through close contact between societies and local authorities at local level can a really effective contribution be made by societies to making up the mortgage lending gap. Societies need to know what local authorities' intentions are for particular areas, and how their renewal strategies will be applied on the ground. Local authorities, on the other hand, need to appreciate the legal constraints within which societies have to operate, and the sensitivity of the relationship between societies and their investors, upon whom societies ultimately depend for their capacity to lend at all.
A good deal of work has been done centrally. For example, the Building Societies Association has given member societies the results of some work done in identifying categories of property on which societies were said to be unwilling to lend. It has become clear that many societies have modified their lending criteria as a result, although it varies from area to area. But to be effective, all this must be seen in the local context. There are no hard and fast lines of demarcation in types of lending—each case is considered separately, and that can be done sensibly only if all the relevant facts are clear.
I turn now to the vexed question of "red-lining" or "blue-zoning" which has had so much publicity lately. I shall carefully consider the evidence which my hon. Friend has given when I review this debate.
It may be right that in some cases societies feel—we are discussing this with them—that they should not lend, that some properties may actually have a negative value if the cost of demolition would exceed the site valuation. In less 1688 extreme cases, the costs of rehabilitation might be so high that it would be questionable whether any individual should be encouraged to take on such a liability.
What is needed is a joint approach by societies and local authorities to an area —planning the improvement by whatever means seems most appropriate. Lack of knowledge of the local authorities' intentions can lead societies to have doubts about lending in an area; and lack of a working relationship with societies can lead local authorities not to appreciate the enormous potential societies have for helping their schemes for improvement and rehabilitation. Over-rigid attitudes on either side are bound to be counterproductive.
All building societies are statutorily required to make a proper valuation survey of property and satisfy themselves of the security of every loan made. But we are identifying a number of areas which are being carefully considered in our ongoing discussions.
I should like to look at the realities of the situation. Building societies and local authorities must work closely together if the building society offer of help is to do most good. All of us should do anything we can to foster that close local understanding that can do so much to make the building societies' help really effective.
I have been encouraged by some of the results that I have seen in various parts of the country where building societies have moved a great way towards lending money on old property—particularly pre-1919 property—which two or three years ago would probably not have got a building society loan. We are making progress in that area and we want to help this along.
I take very seriously the strong case that my hon. Friend has made. I shall consider all the points he has made to see whether more progress could be made. I regard housing as a tremendous social problem. We are anxious to have our people adequately housed. My hon. Friend has raised a problem which has caused great anxiety. I know that from my own mailbag. I shall carefully consider what my hon. Friend has said and see whether together we can find a suitable solution.
§ Mr. Frank Allaun
No one is asking the societies to grant mortgages on houses which are about to be demolished, but many of the houses will be standing for 20 or 30 years. The local authorities have given that assurance in many cases, under general improvement schemes.
Secondly, my hon. Friend says—and I thank him for the tone of his reply—that even if my scheme were operated and the building societies were required to lend a certain amount of their funds to the local authorities, for them in turn to grant mortgages, it would still be considered part of public sector spending, which is now being cut. Is it not daft that if a person goes to the town hall for a loan to buy a house that is considered public spending, but if he or she walks across the road to the ABC Building Society and obtains a loan to do precisely the same thing it is not considered part of public sector spending, and therefore is free of control? As Henry Aughton, one 1690 of the great experts on housing, has said, this is crazy finance. The Government should take that into account and not restrict council lending in this way.
§ Mr. Armstrong
I have heard the argument on that matter from Mr. Aughton many times. It is a controversial matter and discussions are taking place about it. Under present arrangements it is considered public expenditure, but I take on board what my hon. Friend said.
My hon. Friend is not asking for loans to be made on property that is to be demolished. There is a movement in the direction that my hon. Friend and others want, though not as much as they would wish. But we are continuing the discussions and pointing out that old property with a life of 30 years or so can be a very good investment and provide the kind of home we want our people to have.
§ Question put and agreed to.
§ Adjourned accordingly at twenty-two minutes past Three o'clock a.m.