§ Mr. Bruce Douglas-Mann (Mitcham and Morden)
I beg to move Amendment No. 1, in page 2, line 7, after 'savings', insert 'income and capital'.
§ Mr. Deputy Speaker
With this we may take the following amendments: No. 5, in page 2, line 15, after 'savings', insert'and the third condition is that he shall provide evidence that he would not be in a financial position to purchase the property without the assistance of a loan of at least 70 per cent. of the purchase price and that such loans would be of an amount not less than double his annual income.No. 6, in page 2, line 32, leave out 'both' and insert 'all three of'.
No. 7, in page 2, line 34, after 'first', insert 'and third'.
§ Mr. Douglas-Mann
The purpose of these amendments is to ensure that the assistance provided by the Bill is concentrated upon those who might not be able to afford the purchase of a house without the assistance that the Bill provides. On the face of it, any measure that provides additional assistance for those who are buying a house for the first time seems a very good thing. It is quite clear that it has a very wide appeal to hon. Members on both sides of the House.
I ask hon. Members to consider what the effect of indiscriminate assistance to house purchase is likely to be. To what extent, by simply pushing additional money into the house purchase market, are we merely pushing up the price of 1382 houses without increasing the supply in any way? My amendment is designed to ensure that that assistance is concentrated on those at the bottom end of the market who would not otherwise be able to afford to buy, and where there is considerable scope for increasing the supply.
To illustrate the effects of my amendments, Amendment No. 5, contains the essential provision that there should be an additional condition to the payment of assistance under the Bill. This third condition would be that the applicant would have to provide evidence that he would not be in a financial position to purchase a property without the assistance of a loan of at least 70 per cent. of the purchase price of the house and, furthermore, that such a loan would be of an amount not less than double his annual income.
If I can give an illustration, under the financial limits contemplated in the Bill we are told that in Greater London, if the Bill were in force now, a first-time buyer purchasing a property for a price of up to £16,200, would be eligible for assistance. The sum of £16,200, even in London at the present time, will buy a very nice bachelor pad. It will buy quite a reasonable, small single-room flat. For somebody who has ample means and an adequate income, the effect of providing the assistance that this Bill will provide and which somebody—even though he has the income and the capital—is likely to be entitled to receive under this Bill, will merely enable him to pay still more for his flat than he would have done otherwise.
The purpose of my amendment is to ensure that this assistance is restricted to those with relatively small incomes—though not that small. If we take a flat at 1383 £16,000 in London at present, my amendments would provide that under the scheme nobody would be eligible who was in a position, because of his capital, to purchase without the assistance of a mortgage of up to £11,200. He would not be eligible, either, if his annual income was in excess of £5,200.
I ask my hon. Friend to consider to what extent it is desirable for us to provide assistance out of public funds—I would have no objection if there were unlimited funds available—to somebody with an income over £5,000 a year or somebody who is in a position to put down more than £5,000 on his house. In the absence of my amendments, that is what the Bill would provide.
At present, only about one out of five first-time buyers is buying a new house. That means that four out of five first-time buyers are buying existing houses and that four-fifths of any money that we provide to assist the generation of additional demand will generate instead an increased demand for existing houses. Four-fifths of the money flowing from this Bill will go towards inflating the price of houses and will not generate additional demand for new houses coming onto the market.
Therefore, the principle upon which the Bill is based is fundamentally wrong. I admit that I welcomed the Bill on Second Reading, but the more we discussed it during Committee the clearer it became to me that the measure would not help those who need it most. If the Bill were concentrating help at the bottom end of the market—on those who would not otherwise be able to buy their own homes—I would very much welcome it, but to the extent that the Bill provides assistance to those who would be able to buy anyway, I think it is wrong.
I recognise that such people need help and that they are having a tough time, but the fact remains that they are able to buy anyway. To the extent that the Bill enables them to cope with their difficulties a little more easily, it is self-defeating. It will not help them in practice; it will simply inflate the price of houses. It must do. When only one in five new house purchasers are buying new houses, it cannot generate additional supply. It will only push up house prices.
If we were able to concentrate the additional money on those who would 1384 not otherwise be able to buy, it might well attract additional property into the market. I have in mind particularly the potential buyer who is a sitting tenant in private rented accommodation who would be in a better position to buy his house with the assistance available under the Bill. I also have in mind the buyer of property which is at the lowest end of the price scale. Without my amendments we will not be able to help such people.
It may well be that the existing first and second conditions incorporated in the Bill will ensure that those with the greatest amount of family backing will benefit most. These are the ones with financial advisers. These people will be advised to ensure that they have £300 in their accounts in 1979 and they may well be helped by relatives in topping this up to £600 by 1980. This would enable them to get maximum assistance under the Bill.
We must also bear in mind that the Bill is limited in scope because the amount of money involved is not very great. There is provision in Clause 1(6) for the Secretary of State, by order, to alter the sums specified in that clause. We have already heard from the hon. Member for Hornsey (Mr. Rossi) that if he is ever in a position to exercise the powers of Secretary of State he intends to increase greatly the scope of the Bill.
At present the £100 million will have only a limited effect, for good or for ill. If the hon. Member for Hornsey got his hands on the necessary powers, he could cause a lot of harm. I fear that under the leadership of the present Leader of the Opposition he would be under considerable pressure to do so, even though his own judgment might advise him against this, as I believe it would. Therefore, I ask hon. Members to consider very carefully whether tighter restrictions—whether they are those outlined in Amendments Nos. 1, 5, 6 and 7 or in some other form—should not be introduced in another place.
As the Bill stands, there is no adequate restriction on its scope in order to ensure that help goes where it is most needed rather than to those who would otherwise be able to buy their own homes Without such restriction the Bill is damaging and is more likely to result in increasing house prices than in providing any significant 1385 assistance to those who could not otherwise afford to buy their own homes.
§ 5.45 p.m.
§ Mr. Michael Latham
The hon. Member for Mitcham and Morden (Mr. Douglas-Mann) raised an issue of considerable importance. I want to echo some of his thoughts, although I do not feel that his amendments are at all satisfactory.
Amendment No. 5, which is the substantive amendment, says thatthe third condition is that he shall provide evidence that he would not be in a financial position to purchase the property without the assistance of a loan of at least 70 per cent. of the purchase price and that such loans would be of an amount not less than double his annual income.The hon. Member did not tell us how that evidence was to be provided, to whom it was to be provided, or in what way it was to be assessed. I assume that in some way he would have to satisfy the lending institution that he had attempted to buy houses at the ruling price and had not been able to afford it. It would, in effect, be a means test. That is not necessarily in any way objectionable, but the House should know clearly what is being proposed.
The hon. Member's proposal has more weight in principle—although I believe it to be defective in detail—in that it allows the House to face the reality of the position—that we are consciously attempting in two years time to inject new demand into the market.
The Minister said in Committee:we believe that there would be approximately 200,000 people benefiting by the operation of the Bill, of which—I speak now without checking the papers on this—about 30,000 to 40,000 would be additional people outside the margin of purchase now but who would come within the margin of purchase."—[Official Report, Standing Committee A, 4th April 1978; c. 14.]Therefore, 200,000 people, of whom between 160,000 and 170,000 would have been in a position to buy houses anyway, will benefit from the Bill.
What worries me is whether we are doing a wise thing by attempting to inject more purchasing power in two years without knowing anything about the financial conditions that will exist in the housing market at that time. Indeed, it is very difficult to know the financial condition in the housing market at present. I give a simple illustration. I have 1386 with me two publications, one from the Building Societies Association and one from the Nationwide Building Society. The Building Societies Association document, entitled "Facts and Figures", published in April this year, says:It appears likely that in the first quarter of 1978 prices in general were about 3 per cent. higher than in the fourth quarter of 1977 so there has been an acceleration in the rate of increase of house prices but certainly not something which can be termed an 'explosion'.However, the Nationwide Building Society, in a document published at the same time, says:House prices rose by an average of 5 per cent. in the first quarter of 1978 which was the largest quarterly increase since 1973 and compares with an average of 1 per cent. in the fourth quarter of 1977Therefore, at the precise time that we have the Building Societies Association saying that there is no cause for alarm and that 3 per cent. is certainly not something that constitutes "an explosion", we have the Nationwide Building Society—the third largest building society, and a very respected one—talking about the largest quarterly increase since 1973, which has resulted in considerable Press comment and speculation about a possible explosion.
The feeling that came out of a report such as that of the Nationwide Building Society is the sort of thing that has induced the Secretary of State to agree with the Building Societies Association on a restriction on their lending to £610 million a month in order to try to take the steam out of the housing market.
The House-Builders Federation, in its latest report, refers to the sharp deterioration in the availability of mortgage finance. It states thatThe sharp deterioration in the mortgage situation is confirmed in … the inquiry. These show that from a trend of gradually improving mortgage availability and processing, as reported in the last few enquiries, the picture has swung suddenly and substantially in the opposite direction.If that is the position now, if building societies are now finding difficulty in agreeing on the rate of the house price increase, and if the Government—I shall use not the emotive phrase but the neutral—decided to take the heat out of the market to deal with the problem that may or may not exist, how much more difficult it will be to judge the market 1387 in two years' time. We are, therefore, in much more difficulty in saying that at this moment we should set up a scheme to inject purchasing power into the market in two years' time.
I do not believe that the amendment provides the right way of dealing with the problem. The elaborate means-testing system and the arbitrary 70 per cent. are unworkable. If we are to go ahead with the scheme, as manifestly we are as it is the will of the majority of the House, although one or two hon. Members such as the hon. Member for Mitcham and Morden and myself have doubts, we must at least ensure that there is careful monitoring. It would be disastrous if in two years' time the scheme were to go into operation and produce a substantial influx of new money into the market when the market was rising naturally anyway.
I remind the House of the similar action that was taken by President Nixon in his Federal Housing Act 1969. The President decided that he wanted to pick up the private housing building industry, which at that time was on the floor. A new scheme was produced that brought in more money. It picked up the market substantially—so substantially that the scheme had to be terminated after a couple of years because it was extremely inflationary.
We need to consider these matters carefully. I utter cautioning phrases although I know that some of my hon. Friends will not welcome them. However, I believe that such fears should now be expressed.
§ Mr. Armstrong
My hon. Friend the Member for Mitcham and Morden (Mr. Douglas-Mann) has been consistent in expressing his reservations and doubts about the Bill throughout the time that it has been before the House, either on the Floor of the House or in Committee. Today he has tabled amendments to forward the principle that he has repeated quite often about providing assistance to those who need it most. That is a principle with which I do not disagree in any way—indeed, I support it.
I tell the hon. Member for Melton (Mr. Latham) that we shall monitor carefully the effects of the Bill. I take seriously some of his comments. They were 1388 relevant, in a way, to the amendment although not strictly relevant to my hon. Friend's proposals.
I doubt very much whether the effect of the amendment would help to achieve the principle that my hon. Friend has so often put before the House. The adoption of the amendment—I understand that he would not disagree with this—would be tantamount to introducing a means test. The purchaser would have to produce evidence that he was not in a position to purchase without a loan of at least 70 per cent. That would mean that some deserving cases would be denied assistance.
There are those whose income is too small to contemplate a large loan and there are others who are approaching the end of their working life. Those in the latter category may have saved over a number of years and with a relatively small loan and with relatively large savings they may just be able to manage to become home owners. It cannot be right to exclude those from the scheme that we are introducing.
The second element in my hon. Friend's proposals is the need for the loan to be not less than double the purchaser's annual income. Surely that, too, could work unfairly. Let us think for a moment of parents with large families or parents whose incomes are liable to fluctuate. It would be foolish to encourage them to undertake a large loan. How is income to be assessed? Is it to be the joint income of husband and wife? We know that practice now varies a great deal.
The amendment would complicate these matters unduly and could act unfavourably on some would-be home owers.
§ Mr. Douglas-Mann
My hon. Friend asks how income is to be assessed. On every application for a building society loan details of income have to be provided. In the table of facts and figures from the Building Societies Association, to which the hon. Member for Melton (Mr. Latham) referred, there are details of the average income of the first-time buyer, from which it is clear, as matters stand, that he is obtaining a loan of about 80 per cent. of the value of the house that he is purchasing. The loan is a little under 80 per cent. but well over 70 per cent.
1389 The first-time buyer is getting an average advance that is slightly under twice his income. The purpose of the amendment is not to add to bureaucratic procedures. That procedure has to be gone through in any event. The purpose is merely to restrict the benefit to a significant proportion but not to a minority.
§ Mr. Armstrong
I do not quarrel with what my hon. Friend has just said. However, if we are extending the qualifications when considering the eligibility of would-be purchasers for assistance under the scheme, each individual would have to be considered in a much more detailed manner than at present. It is no good talking about averages. Each application would have to be considered because the applicant's eligibility would have to be determined in a precise way.
That which my hon. Friend seeks so as to ensure that money goes where it is most needed is best covered in the fairly simple scheme that we have proposed, which incorporates regional price limits combined with the minimum size of mortgage loan. Surely that is the best way of giving assistance to those who really need it without building up the whole paraphernalia of income testing that the amendment would involve.
We have necessarily included safeguards to ensure that help goes where it is most needed, to enable those who would otherwise be excluded, or who are just on the margin, to receive assistance. We consider that our proposals would have that effect. I ask my hon. Friend to withdraw the amendment.
§ Mr. Douglas-Mann
I believe strongly that the amendment is desirable. I appreciate that there is not a body of support in the House, but I feel that I cannot withdraw the amendment.
§ Amendment negatived.
§ Mr. Sainsbury
I beg to move Amendment No. 2, in page 2, line 10, after 'date', insert 'of the approval'.
The amendment arises out of a suggestion from the House-Builders Federation that we discussed at some length in Committee. The Minister said, towards the end of that discussion:I see the attraction of handing over the benefits as quickly as possible, and it is the intention of the amendment to do so at the 1390 first possible moment."—[Official Report, Standing Committee A, 4th April 1978; c. 26.]The right hon. Gentleman raised some technical objections to the means of arriving at a position where the benefits were handed over, as he said, "at the first possible moment", which we, the Opposition, took as valid. I hope that the amendment meets those objections. Subsection (3) would then allow assistance to be given to people whohave been saving with a recognised savings institution for at least two years preceding the date 'of the approval' of his applicationrather than the "date of his application".
Clearly, as the Minister recognises, time is taken in processing an application for a mortgage. Time will also be taken in processing an application for help under the scheme. If the purchaser has to wait two years before making his application for assistance, there will inevitably be further delay in the procedure of house buying, which is often more lengthy and subject to delay than people would like.
I see no objection to allowing an applicant to apply for assistance well in advance of the two-year deadline in order to clear paperwork and receive approval, subject to his fulfilling the conditions set out in subsection (3) at the deadline point.
The Minister's objections to the amendment originally introduced in Committee do not apply to the revised wording. I suggest that if we allow an earlier application—if we allow the paperwork, and so on, to be cleared before the completion of the two-year period—although we may not save an enormous amount of time—probably only two months, but it is still worth saving—we may save applicants some worry about their eligibility and the amount of help that they may expect to receive. Therefore, I commend this simple amendment to the House.
§ The Minister for Housing and Construction (Mr. Reginald Freeson)
I fear that the difficulties that I described in Committee have not been resolved by the change in the drafting, as I hope to show the hon. Member for Hove (Mr. Sainsbury).
Like the Opposition, I want the benefits of the scheme to be paid as soon as practicable after the two-year savings 1391 period. The efforts of Opposition Members to find ways of shaving off a few weeks would, I fear, result only in confusion. Indeed, they could possibly cause delay rather than bring forward the date of payment.
The savings period must end on the date of an event which is certain to occur. It is the only way in which we can get qualification. It is no good stipulating a closing date which is both unpredictable and outside the purchaser's control. I say this because there is no requirement under the Bill, nor indeed in the amendment, for the application for assistance to be approved by the lender at any particular date.
Even if such a requirement were made, the prudent lender would not give formal and final approval until he was certain that all the conditions had been fulfilled, and he could not be certain of that until the purchase had been completed. He could not be certain when, as was suggested by the hon. Member for Hove, the application was processed "well in advance of the end of the two-year period". It could not be known at that stage that the conditions which would qualify for benefit under the scheme had been met.
If assessment were delayed until the purchase had been completed, the purchaser would be unable to use his savings at the very time that he most needed them—I made this point strongly in Committee and I repeat it now—namely, in the period between making a "subject to contract" offer and completing the purchase. At best, the amendment would result in additional and unnecessary administrative procedures. At worst, a purchaser might be unable to use his savings when he needed them or, if he used them before the period was up, he might be deprived of assistance altogether.
I explained at some length in Committee why the date of application, which is under the control of the purchaser, is by far the best closing point. It frees the purchaser's savings at the earliest possible moment for the various purposes to which he wants to put his savings in connection with the purchase—sometimes in connection with the start or the commissioning of repairs which can be required by a building society on an older property—and it enables the lender to process the 1392 application for assistance in an orderly way. The lender needs to know whether the savings conditions have been satisfied before deciding the amount of total loan. He cannot be certain of that until there is simple documentary evidence that the savings conditions have been satisfied.
I shall try to make this point by reference to an example. I cannot remember whether I did it in this way in Committee. The amendment would mean that a would-be purchaser might apply for assistance with less than £600 in his account, because he would be making his application ahead of the completion of the period. How can the institution approve it at that stage without knowing the outcome of the qualifying period with regard to savings?
§ Mr. Sainsbury
We seem to be going over the discussion that we had in Committee. I thought that I had got the Minister to accept that in life many things are approved subject to a condition being fulfilled, including the purchase of a house. The purchaser will buy "subject to contract", sometimes "subject to survey" and nearly always "subject to a mortgage". This is not unusual. This is a normal process.
§ Mr. Freeson
That reinforces the point that we are creating uncertainty, not certainty, in the operation of the scheme. Such uncertainty will be particularly damaging to the applicant. It will also be difficult for the lender. The hon. Gentleman's intervention confirms the point that I made in Committee, and make now, that the operation of the scheme depends on qualifying conditions. If this proposal operates one, two, or more months in advance of the period of completion, as was suggested, we shall create an unknown quantity of uncertainty in the operation of the scheme for both the lender and the prospective purchaser.
The institution will not be able to determine its final loan offer until it is sure that the applicant has reached £600, or it might assume that the conditions were not going to be met—it could make such a judgment on the information before it—and make a lower offer accordingly. The institution can make a considered offer of total loan, including the extra £600, only in response to an application made when the savings conditions have been met.
1393 It would not be reasonable to require the institution to determine eligibility for the Government loan on the same day as it makes its offer. How could it obtain satisfactory evidence of the purchaser's balance at the kind of period which has been broadly estimated by the hon. Gentleman and which I have accepted as the basis for his thinking, namely, two months or more before the completion of the period? That kind of information is not available instantly.
I accept the underlying motivation of the amendment in principle, as I said in Committee, but I do not think that the proposal is workable. I think that it would add confusion and difficulty to the operation of the scheme.
We have been back to the institutions on this and on a number of other matters. We have consulted essentially the building societies, but others have been involved. They confirm our view. Of course, they will have to administer the scheme. Our proposals will work, because they have been worked out in conjunction with the institutions.
I appreciate that there has been a small change in the wording of the amendment compared with the proposition put forward in Committee, but it does not meet the difficulties that were raised at that time and which I have repeated today. Therefore, I hope that, on reflection, the hon. Gentleman will accept what I have said today and will seek leave to withdraw the amendment.
§ Mr. Sainsbury
I think that the Minister's advisers are very skilled at finding a whole series of difficulties which might apply to a small number of cases only and making them sound even worse than they are.
I appreciate that there are some valid doubts whether the amendment would make the scheme more administratively complex. I wish that I had confidence that the Minister had pursued with more energy the intention that he expressed in Committee about making the help available as quickly as possible. If that were a real intention, I think that he should have been able to find ways of enabling people to get through the paperwork in advance.
1394 In the light of what the Minister said, however, I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Mr. Douglas-Mann
I beg to move Amendment No. 4, in page 2, line 15, leave out '£600' and insert:'a sum at least equal to the amount of assistance for which he is making application under subsection (4)(a) below'.
§ Mr. Deputy Speaker (Mr. Oscar Murton)
With this we may discuss Government Amendments Nos. 10 and 11.
§ Mr. Douglas-Mann
The purpose of this amendment is to enable an applicant to obtain assistance under the Bill if the amount that he has saved falls short of £600. It would enable the applicant, as of right, to receive assistance up to the amount that he has saved. If he has saved £500 he will be entitled to £500 worth of assistance under the Bill.
I am pleased to see Government Amendments Nos. 10 and 11, which enable the Secretary of State to achieve the same result by order, but I should have preferred this provision to be incorporated in the Bill. Earlier in the debate I expressed anxieties about what the hon. Member for Hornsey (Mr. Rossi) might do with that power. I am apprehensive about the ways in which he might exercise that power were he given the opportunity.
The Government have shown their good will in their amendments, and I do not propose to press my amendment. The value of the Bill lies in the extent to which it will help those who are at the margin. I have grave reservations on the question whether we were wise to incorporate the savings provisions in the Bill. The picture in the Bill is that of the young couple carefully putting away money each week in a building society so that they will be able to purchase a house after a two years' savings period. Although house prices have not increased so much in the last two years they are starting to accelerate again. If someone is not in a position to purchase a house now, after a two years' savings period he might be in an even less favourable position to purchase.
Those who are most likely to qualify through the savings conditions are those whose parents are in a position to assist 1395 them. Originally I welcomed the savings conditions, but on reflection I feel that in practice they will be fulfilled by those whose families are able to help them rather than by those who rely entirely on their own efforts.
Since there are savings conditions it is desirable that someone who has not quite reached the target should, nevertheless, be able to obtain reduced assistance under the Bill. The Government amendments would enable this to be done by order. In those circumstances, I do not wish to press my amendment.
§ Mr. Freeson
I assure my hon. Friend the Member for Mitcham and Morden (Mr. Douglas-Mann) and the hon. Member for Reading, North (Mr. Durant) that the arguments advanced by them in Committee have been carefully considered. I have sympathy with the objectives of the amendment. The Bill can help to direct assistance to those, especially in the inner cities, who are seeking to buy cheaper houses or those who wish to join certain types of co-ownership schemes such as community leaseholds and certain types of shared equity schemes which will also qualify the individuals concerned so long as they have individual mortgages.
Because of the thought that I gave to the subject even when the Committee was debating the matter, I concluded that we should do something along the lines set out in Amendment No. 11. I believe that that represents a more flexible method of dealing with the problem. It will permit the introduction of a sliding scale when we have more experience of the practical operation of the scheme and when we are persuaded that the need for it is established.
It is only fair that I should put on record again my doubts about a sliding scale of loan. One of great virtues of the scheme is its simplicity. There are two elements—the £600 single value loan and a simple sliding tariff. To underline the simplicity the final saving required for the loan is also a single figure—£600. Amendment No. 4 would introduce a sliding scale involving any amount between £300 and £600. I fear that this might diminish the effectiveness of the scheme.
The proposed scheme is intended to encourage people to achieve a reasonable 1396 level of savings before purchase. Unlike my hon. Friend the Member for Mitcham and Morden, who has had second thoughts, I stand by the scheme because it involves an important principle. This measure should not be undertaken other than on the basis of a partnership between the State and the individuals concerned. That is why I stand by the principle of saving/lending assistance, plus the bonus in the scheme.
Money is needed for deposit, survey, legal fees, removal expenses, and initial works. I am aware that sitting tenants have no removal expenses, but the majority of people have transaction costs of £300 or more, rising to the figure in the Bill. Except in the few cases where 100 per cent. loans are offered, £300 is not enough for this type of initiative. We did not choose £600 out of the blue. We thought carefully about the right level that would set a reasonable but not impossible target.
Since the Committee stage I have asked for the views of the building societies which will administer the scheme free of charge on behalf of the Government. They confirm that a sliding scale would add substantial complications and that a separate calculation for each loan, depending on its value, would have to be made.
I do see the force of the counter-arguments. That is why I have tabled Amendment No. 11, which will empower the Secretary of State to introduce a sliding scale of loan by order when we have had more experience of operating the scheme, subject to negative resolution procedure.
If we find that among those buying cheaper houses a significant proportion are unable to save up to £600 an order can be made to introduce a sliding scale. We shall be able to discover this by the strict monitoring of the scheme that we propose. I envisage that we might have a tariff on the lines of the bonus, but not as suggested by my hon. Friend, although it would have the same objective if we were to go along that road.
There would be a number of fixed points in the tariff. For example, there would be a £300 loan for £300-£399 of savings, a £400 loan for £400-£499 of savings, and so on. This system would retain some of the simplicity which is so important to the purchasers as well 1397 as to the institutions that will administer the scheme.
I hope the House accepts the approach that we have adopted on this matter in our consideration of the views expressed in Committee—views with which I have some sympathy—and will accept Amendment No. 11.
§ Mr. Rossi
I thank the Minister for tabling Amendment No. 11 and for meeting the case that we put to him in Committee for greater flexibility in the scheme. We accept, of course, the administrative problems that he has had to face in his discussions with the building societies, in seeking to produce a simple scheme, but we had very much in mind the fact that £600 of savings over two years represents £6 a week out of a net income, after tax, for a young couple.
That is not an easy matter for the kind of people who are acquiring property, in inner cities, for example, on 100 per cent., 95 per cent. or 90 per cent. mortgages. In these circumstances, the £600 requirement of savings over two years could have been an insuperable barrier and contrary to the general interest of trying to make home ownership available to people in those circumstances.
I hope that the Minister, having accepted those arguments and having brought forward the kind of amendment that we were seeking, will not allow this proposal simply to lie upon the statute book un-noted, but will quickly bring forward a scheme so that the people to whom I have drawn attention may benefit. If these people are able to save only £300 over two years they will get the advantage of a £300 loan. That will be a considerable help to them in meeting all kinds of expenses they will incur, even though they may have a 100 per cent. mortgage to cover the purchase price of the property. To that extent, I once again thank the Minister.
§ Mr. Douglas-Mann
Although I was slightly disappointed at the tentative tone in which my right hon. Friend the Minister set out his intentions to introduce this proposal, I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.1398
§ Mr. Armstrong
I beg to move Amendment No. 8, in page 2, line 34, at end insert'but he does not in any case qualify unless the amount of the secured loan is to be at least £1,600 and not less than 25 per cent. of the purchase price of the property.'.
§ Mr. Armstrong
These amendments arise from the discussion in Committee. We took seriously the concern expressed there about the need for parliamentary control over the key elements of the scheme, and in particular we have taken on board the very strong arguments advanced by the hon. Member for Reading, North (Mr. Durant) about the importance of the lower limit to the value of the loan from the lending institution which will attract Government assistance.
We therefore want to give assistance only in cases where the secured loan is at least £1,600—that is, £1,000 plus the Government's £600—and where that represents at least 25 per cent. of the purchase price. To set an even lower limit or no limit would bring in more first-time-purchases, but people who took such a small loan would be showing that they did not need assistance. Smaller loans can cause a massive amount of extra work in the arrangement of payments and repayments over a longer period. We would not want to set the limit too high, however. There are district councils that give loans of around £2,000 to help young couples who are buying for the first time small terraced houses that they are prepared to renovate and improve.
Careful consideration has brought us to the same view as that held by the working party, which was composed of experts from local government, the banks, the building societies and insurance companies, about the size of the minimum loan. The figure is £1,600 including any Government loan. The figure is about as low as we should go, we believe, and it should ensure that the assistance goes to the deserving young couples I have mentioned.
As with other requirements in the Bill, there would be a power for the limits to be varied by means of an order subject to the negative resolution procedure.
§ Amendment agreed to.1399
§ Mr. Rossi
I beg to move Amendment No. 20, in page 2, line 34, at end insert—(6) Those who have been saving with a recognised savings institution for at least two years preceding the appointed day of this Bill will qualify to receive assistance under subsection 4(a) and (b) immediately from the appointed day by satisfying the second condition of subsection (3) provided that the loan is applied to the purchase of a recently built house not previously occupied as a home by any other persons".The purpose of the amendment is to add a subsection to Clause 1 to deal with the situation in which people have been saving regularly up to the time the Bill becomes law to enable them to qualify for some of the benefits under this measure.
As the House has already been told this afternoon, the Government's intention is that the assistance under the Bill will not operate for two years after it becomes law. In other words, if it received Royal Assent next month, people would have to wait two full years from then—until the summer of 1980—before they could derive any benefit.
One can see that this is a valid proposition in respect of the tax-free bonus on savings, otherwise it would mean that the bonus would be given retrospectively on savings made in the past. With loans, however, the proposition about retrospective revenue legislation does not apply.
One of the difficulties that will be caused by the way in which the Bill is to be operated, requiring two years of savings before the loan can be made, is this. There may be those who will be tempted to hold back from buying a house, in order to take advantage of the scheme, until the end of the two-year period. If a lot of people took that attitude, the housing construction industry would be in difficulties.
I do not have to tell the Minister of the difficulties of the housing construction industry or of how many hundreds of thousands of unemployed building workers there are. Any measure that further damped down demand for two years should therefore be avoided. The anxiety that I express has been expressed to me by the House-Builders Federation. It is extremely worried by this aspect of the Bill.
There is a further extension of that proposition. Not only will demand be 1400 damped down during the two-year period while people are saving, but at the end of that period demand will surge for houses that are not available, and that will serve only to increase the prices of those that are available.
We discussed this matter at some length in Committee and I detected in the Minister's reply sympathy for the problems of the house builders. However, the right hon. Gentleman did not wish to take up our proposition in respect of all house purchasers. He recognised the problem on new houses but felt that nevertheless he should retain the two-year delay on the purchase of secondhand houses and that the £600 loan should, therefore, be delayed for two years in respect of those houses.
Therefore, there is a difference between the amendment that is before the House today and the amendment as it appeared before the Committee, because, in order to meet the objections raised by the Minister and to try to spell out specifically the fact that we were anxious not to cause greater problems for the house builders than they have at the moment, we have added words at the end of the amendment as follows:provided that the loan is applied to the purchase of a recently built house not previously occupied as a home by any other persons.
§ Mr. Douglas-Mann
I am in many ways greatly attracted to the idea of concentrating assistance on new houses which have not previously been occupied, for reasons that I have indicated in other speeches. But I was wondering how the hon. Member's scheme would operate. Is he aware that, according to the facts and figures of the Building Societies Association, to which reference was made earlier, in February the prices of new houses were 15.2 per cent. higher than those of a year earlier, whereas existing house prices were only 7.9 per cent. higher? Therefore, it is the price of new houses that is rising most rapidly and this, as the Building Societies Association argues, is a consequence of additional demand, principally from purchasers of new houses.
§ Mr. Rossi
I am aware of those figures, but the price of new houses as distinct from second-hand houses is dictated mostly by the increase in construction costs. Looking at the figures produced 1401 by builders, one sees that their margins are very limited indeed. The problem that many of them have is that, having to construct new houses at these higher prices because of increased construction costs, they find that in some parts of the country they are unable to sell because second-hand houses of equal quality are being sold cheaper. Therefore, I do not think that the hon. Member should rely too much upon those figures in dealing with the point I am trying to make in regard to this amendment.
Because the builders are in that difficulty, it is even more important that we give some immediate aid now in order to encourage them to build more houses and not to draw back from so doing by damping down demand even more than it is damped down now in this sector in some parts of the country.
This is a matter that the Minister recognised. This was the tenor of his reply to our representations in Committee. That is why the amendment is presented to the House in this form. As we have sought to produce the amendment in this revised form, in order to meet the expressions of interest of the Minister in Committee, I hope that he will now see his way to accepting it. We could go no further to meet his wishes than as we have done.
§ Mr. Stephen Ross
I also find myself very much attracted to the new amendment. I think I said on Second Reading that the example in Ireland was that when the new Government came to power there they introduced a measure to help home purchasers which was directed entirely at new house building to give a stimulus to the building industry generally. I see this as giving just such a stimulus, which I think the industry still needs. I can see the strength of the argument.
I was all for an outright cash payment to start with. The longer that one debates the Bill, the more one sees the snags creeping in. Therefore, I personally think that the Government have got it right. I can, however, see strong arguments for this amendment to try to give some impetus to the new house building industry now to encourage first-time home buyers to try to concentrate a little more on this aspect, and certainly to avoid what may well happen in two years' time, as the hon. Member for Hornsey (Mr. Rossi) 1402 has quite rightly said—a sudden upsurge of demand for the older type of property. One can foresee that.
I am already advising people who come to see me that the Bill is coming forward and that, if they are patient and save, in a couple of years' time they will benefit from the bonus that the Government will be providing. If there is some way in which we can introduce this measure earlier and direct it at new house building, there is everything to be said for it.
I am sure we shall be told that this is too complicated and would mean more bureaucracy. I take very much to heart the ideas of the Government that this should be a simple scheme, but I suspect that the building industry will be in need of an added stimulus. I do not think that anyone present will say that it is working at full steam. It is certainly not doing that. We need a great many more houses built in Britain.
I do not know whether any hon. Members watched the television programme "Open Door" last night. It absolutely reiterated what I think most of us had known all the time—that there is no alternative, if we are to deal with our situation, to building a great many more houses. Certainly we need many more houses built in the inner urban areas.
Therefore, if there is some way in which the Government, if not accepting this amendment now, could try to meet the spirit of it, either by the way in which they dealt with Amendment No. 11—bringing it in by order—or by a further amendment in the other place, they would be doing a service, because it would help the Bill to operate much more smoothly than it may do. One can foresee pitfalls ahead.
I want to see this measure succeed, as I am sure everyone else does. I think that it is quite a bold move. It is a move in the right direction. As I said, the Government have got it about right. I do not support the idea that one can pump very much more money into this. I have listened with great interest to the hon. Member for Mitcham and Morden (Mr. Douglas-Mann), because I see the Bill, in some of its aspects, adding to inflation, which is just what we do not want to happen to house prices. The Government have a very difficult task in trying to keep the lid on house prices. They may well have been right in their conversations with the building societies 1403 to try to restrict lending. I certainly never want us to return to the circumstances of the period of 1972–73—certainly 1972, anyway.
I know that we are dealing with a very delicate mechanism, but if there is some way in which the amendment can be met I think that it ought to be met. I hope that the Government will see their way to doing so.
§ Mr. Douglas-Mann
I sincerely trust that my right hon. Friend the Minister will not be tempted to accept the amendment. It is unlikely that he will do so, because he is clearly aware—this is the reason why the Bill has been framed in this way—that the impact of the Bill will be to add to demand. Unless the builders have the opportunity of preparing for that additional demand, the sole impact will be on house prices.
My fear is that that will be the effect in two years' time. It would certainly be the effect if the Bill were introduced now, even if it were restricted in the manner suggested by the hon. Member for Hornsey (Mr. Rossi) in the amendment.
I should like to commend to my right hon. Friend the concept of restricting some of the kinds of assistance that we give to house owners and house purchasers to those who are purchasing new houses. The sole real argument in the Green Paper against a reform of the system of housing finance could be summarised as saying that, if it had not been for the overall assistance—the £1,100 million a year—that we give to mortgagors through mortgage interest tax relief, no one would have been able to afford to buy any houses at all. That is the implicit argument in the Green Paper, and it is the implicit argument put forward by the hon. Member for Hornsey just now in reply to my intervention.
I would commend both to Ministers and to the lion. Member for Hornsey Figure 5 on pages 20 and 21 of the Green Paper. That shows that the real effect of increased demand is a sudden acceleration in land prices rather than in the costs of the construction industry. The costs of that industry have remained extraordinarily stable. Earnings in the building industry have closely followed the pattern of national average earnings, whereas land prices fluctuate wildly in response to increases in demand.
1404 I would also commend the leading article in the Building Societies Association's facts and figures paper. The BSA is not a body on whose facts and figures I would strongly rely—I have frequently been in disagreement with ifs approach to housing finance—but in the current issue I find strong support for my views on the immediate or long-term implementation of the Bill in an undiscriminating way. The BSA says:The rise in prices is not, as some commentators maintain, pricing first-time buyers out of the market. Rather, it is the precise opposite which is occurring. Because so many first-time buyers are seeking to enter the market, the price of houses is rising.That argument is well supported by the facts and figures in the article.
The amendment would lead to additional demand. There would not necessarily be more first-time buyers, but there would be more first-time buyers with more money to spend, able to generate instant additional demand, with no possibility of any increase in supply to meet it. That would immediately produce a further surge in the price of houses. The amount involved might be very small, but the principle is fundamental.
§ Mr. Stephen Ross
I am following the hon. Gentleman's argument with interest. However, two or three years ago many hundreds, if not thousands, of new properties were standing empty because of lack of demand. There was a big municipalisation programme. Local authorities were stepping in to buy some of those houses—with some odd consequences. We are talking of a limited number of people anyway. Does the hon. Gentleman think that, by going some way towards the amendment's objective—by directing this money towards new house building—prices would be pushed sky high? I do not agree.
§ Mr. Douglas-Mann
I do not say that they would be pushed sky high. I say that we should be putting public money into pushing up prices and that it would have no other effect. If the amount involved—as it would be—were only a few million pounds, a few million pounds of public money which serves no purpose but to increase prices is a few million pounds badly spent.
Of course, the proposal will not have a vast effect. Of course, there have been times of fluctuations in demand which 1405 have resulted in the construction industry being unable to sell what it has already produced. The argument of ensuring stability of demand for the industry's product is going a little wide of the amendment—although not very wide, because it is directed to the effect of demand as a consequence of this change.
§ Mr. Stephen Ross
One other point occurs to me: that most new house building will be outside the range of the Bill. We are talking, therefore, about the cheaper houses in provincial and rural areas where this kind of demand does not exist and where the proposal would be very helpful.
§ Mr. Douglas-Mann
According to what we have been told, the relevant figures would be £12,300 in the South-East and £16,200 in London. That is for a young single purchaser who will be eligible for assistance under the Bill. A price of £16,000 can still be in the luxury class if it is paid for a very small flat.
The hon. Member for the Isle of Wight (Mr. Ross) has drawn me rather wide. The point I wish to stress is that if the amendment were accepted we should certainly bring on our heads immediately the harm which I fear will come to a lesser extent when the Bil comes into full effect in two years. I hope that my hon. Friend will consider a selective subsidy for newly-built houses. Four-fifths of what we spend now on subsidising houses goes to push up prices, because four out of five transactions are for existing dwellings. If we concentrated on new houses, the argument in the Green Paper for persisting with the present expensive system would fall. I therefore welcome the idea in the amendment, although not the actual proposal involved.
§ Mr. Freeson
Having seen a new hon. Member for Hornsey (Mr. Rossi) in his remarks tonight, I was almost persuaded to go along with him. However, his recollection of my response in Committee has been clouded with warm good feeling towards me which does not reflect the mood in which I responded then.
I must repeat that the arguments I adduced against the original proposal in Committee are even stronger if the intention is to narrow this retrospective 1406 application simply to new houses. That would reinforce the argument that we should be putting pressure on those prices when the market had not been prepared for the application of the Bill.
One theme brought out both in Committee and today is the need for the two-year period, apart from the administrative aspect, to allow the market to adjust to the increased demands that the injection of this assistance will place upon it. We judge that this period will provide sufficient time for adjustment. That is particularly apposite to the provision of new houses—even more than to the secondhand market. If one injected these resources immediately, the market would not have had time to adjust. The situation described by the hon. Member for the Isle of Wight (Mr. Ross) would be with us now as distinct from being with us in two years.
Despite what the hon. Member for Hornsey said, I believe that if we stick to the Bill as presently proposed, so far from there being a sudden surge of demand in two years without additional houses being available, the reverse will to some extent be true. In about two years, I suspect that there will be a slight hiccup as people wait in those two or three months for these benefits to accrue. In the summer and autumn of 1980, the first year of the operation of the scheme, there will be a slight holding back while people await the concluding period of the qualifying conditions.
§ Mr. Sainsbury
Would not the Minister agree that the market is much more likely to be affected, and demand adversely affected, by an upward movement in mortgage rates, which unhappily now seems likely, than by the changes brought about by the modest help in the Bill?
§ Mr. Freeson
There are all sorts of factors at play. If we want to proceed expeditiously with the Bill, I think that this is not the occasion to stray too widely, although one may be tempted to do so.
I am making the point that if we were to inject resources immediately, as proposed in the amendment, in respect of new houses when the market is not yet adjusted, we would exacerbate the problem of prices. Contrary to what has been suggested, in two years' time there will not be a sudden situation in which the 1407 provision of these houses will cease. The market will have been able to adjust in the expectation of the benefits of the Bill beginning to flow. There will be a constant flow of people coming into the scheme, but in the first year there will be some holding back.
Let me give the House some background information. It has been suggested that it is important to take action now—not primarily to benefit the individual applicants in the first year, but as a one-off exercise to benefit the housing market. Let me make clear that the House-Builders Federation has not put the same point to me as it has obviously put to the hon. Member for Hornsey. The matter has not been put to me in those terms, but the federation has expressed general interest and has been warmly receptive to the Bill. In other words, that organisation would like to see more steps taken in this sphere.
The present position in the market is that, contrary to experience in the last few years, there is a steady increase in demand as well as in building activity. The last returns made by the house builders, as I recollect—I should have to check the precise figures—showed an expectation of 135,000 housing starts in the private sector in the current year. The house builders now expect a figure of about 160,000. Therefore, in a short period of time, there has been a marked increase, which reflects a feeling of confidence and an expectation of action in the building of new houses. It is the reverse of the situation that occurred two or three years ago when, following a great boom, there was a collapse in the market. That was caused by a number of factors, and one of the major factors was the mortgage famine of 1974. That collapse in mortgage facilities is no longer with us. We got away from that position after a year or 18 months.
Despite the restraint on mortgage flow which we negotiated with the Building Societies Association in early March, there will be a larger flow of mortgages in real terms in 1978 than in 1977. This goes against a certain amount of the mythology which has tended to creep in on mortgage flow. I do not expect to see the slightest sign of a mortgage famine. There has been close monitoring of the position in seeking to adjust matters as we think right in conjunction 1408 with the Building Societies Association, but the problems which have been underlined as background factors in relation to the Bill do not arise in practice.
Let me now make a point about equity. Much has been said about the need to direct help to the older, cheaper properties in the inner city areas. We cannot at the same time select in an inequitable way certain provisions in respect of newly built houses. For these reasons, I hope that the hon. Gentleman will not press his amendment.
§ Amendment negatived.
Amendments made: No. 9, in page 2, line 38, leave out 'and (4),' and insert:
'(4) and (5), and the percentage figure in subsection (5).'.
§ No. 10, in page 2, line 38, leave out 'or'.
No. 11, in page 2, line 40, at end insert:
'(c) alter the second condition of subsection (3) so that purchasers can also satisfy it with lesser amounts of savings, and enable assistance under subsection (4)(a) and (b) then to be given according to reduced scales specified in the order.'.—[Mr. Freeson.]