HC Deb 14 June 1978 vol 951 cc991-4
9. Mr. McCrindle

asked the Secretary of State for the Environment when he last met the leaders of the Building Societies Association.

17. Mr. Newton

asked the Secretary of State for the Environment what recent consultations he has had with the Building Societies Association.

Mr. Shore

I met the chairman and deputy chairman of the Building Societies Association on Thursday 8th June.

Mr. McCrindle

Is it not ironic that as Government policy permits the phasing out of the request to the building societies to reduce their lending to first-time buyers and others, the same people will now be subject to an increase of between £5 and £10 a month on the average mortgage as a result of the defects in Government policy in another sphere?

Mr. Shore

Of course, I regret the increases in mortgage rates. The hon. Member is right. The effect on the average £10,000 mortgage—which is roughly the sum that people were taking out in April this year—for first-time buyers is about £5 a month net of tax. The hon. Member will agree that if building society rates were at the level at which we inherited them from the Conservatives the increase that first-time buyers would have to pay would be not £5 a month but £10.

Mr. Grocott

Was the recent increase in the mortgage rate in the public interest? If it was not, will my right hon. Friend tell the House what powers he requires to ensure that the Building Societies Association acts in the public interest?

Mr. Shore

The public interest in relation to building societies and interest rates cannot easily be defined. There are at least two or three major considerations which must be balanced. First, and obviously, everyone is anxious to have the lowest possible lending rate. Secondly, we have a strong interest in seeing that there is an adequate supply of building society money so that would-be owner-occupiers can receive the mortgage money that they need. Thirdly, we must ensure that the money market is not swamped with building society money. If it were there would be a house price explosion of the kind that we experienced when we had a Conservative Government.

Mr. MacKay

Does the Secretary of State appreciate that his intervention which led to the drying up of mortgage funds was completely counter-productive? Does he agree that it increased prices considerably and caused suffering to those who wanted a second mortgage? In the interests of house buyers will he guarantee the building industry and the public that there will be no further Government interference in an area about which they know absolutely nothing?

Mr. Shore

I find that question extraordinary. I assume that the hon. Member was referring to the time when, three or four months ago, I asked the building societies to look at the pace and level of their lending because I was anxious about the sudden escalation in house prices. I asked them, and they agreed, to reduce the rate of lending. Had I not asked them to reduce the rate of lending, I can assume only that they would have less money today than they have and that the shortage would be greater.

Mr. Stoddart

Is my right hon. Friend aware that the composite rate of tax charged to the building societies will fall significantly this year, bringing them a substantial windfall? Under those circumstances, does he not believe that the increase in the mortgage lending rate of 1¼ per cent. is exorbitant? Will he see the building societies again and ask them to give the benefit of their privileged tax position to house buyers and borrowers?

Mr. Shore

I am aware of the point about the composite rate, but I am also conscious, as the House has to be, of the competitiveness of other claimants on the savings of the country. We wish to maintain a situation in which we do not have a famine of mortgage money. There is a difficult judgment to be made about precisely what is the right rate at any moment.

Mr. Heseltine

When the Secretary of State saw the building societies' leaders, did he not agree with them that they had no choice but to put up the interest rates in the way that they did? They are forced to compete with the rates which the Government are paying for the vast excesses in borrowing in which the Government are indulging and which are forcing up interest rates throughout the whole economy. Did he also tell them that the problems of the building societies are symptomatic of the declining confidence in the Government's overall economic policies, which have led to an increase not only in building society rates but, bank and other rates?

Mr. Shore

I think that later today we shall hear a rather different version of recent events in the economy than that put forward so briefly and inaccurately by the hon. Member for Henley (Mr. Heseltine). I believe that when the minimum lending rate went up, as it did on Thursday, some increase in the building society rate was almost impossible to avoid. Nevertheless, the extent of the increase is a matter for considerable discussion and one upon which difficult judgments have to be made.