Assistance for Local Authority Leaseholders (Hansard, 16 February 1994)

§ Mr. John Denham (Southampton, Itchen)

I beg to move, That leave be given to bring in a Bill to require local authorities to identify residential properties of which the authority owns the freehold and which the leaseholders find hard to sell; to require local authorities to make available mortgage guarantees to assist the sale of certain local authority leaseholds of residential property; to enable local authorities to repurchase the leases of certain leaseholds of residential properties; and for connected purposes. The Bill is a rescue plan for some 70,000 home owners who, to all intents and purposes, are trapped in former council fiats. More than half those who were induced or seduced to buy under the right to buy are or will be living in properties which simply cannot be sold. That is ironic because the majority of people who bought flats did so because they thought that it would be easier to move by selling than through council transfer lists.

One couple in my constituency bought their tower block flat for cash in 1981 and have since made it into a model home. They have been trying to sell that flat for several years. They have dropped the asking price by 50 per cent. and they have found several potential buyers, but not one of those buyers can get a mortgage—not even a 60 per cent. mortgage.

Another constituent bought a one-bedroom flat in a medium-rise block in my constituency in 1988. She subsequently married and started a family; she needs to move to a bigger home. She has found potential buyers, but not one can obtain a mortgage, not even from the bank which currently mortgages the property.

Mortgage lenders have red-lined all high-rise and most medium-rise blocks of flats. On that basis, we can confidently predict that 70,000 households will face the same problem in the future. Not only can the owners not sell, but many face higher service charges than they first expected.

The Conservative Government bear a heavy responsibility for that crisis. That is why my Bill requires them to act. The Government must not continue to shuffle off responsibility on to local authorities that have neither the full legal powers nor the resources to deal with the problem.

The Government promoted the right to buy to flat owners with quite extraordinary irresponsibility. The latest leaflet from the Department of the Environment warns potential buyers of possible high service charges and mortgage problems. But that only emphasises the Government's failure to issue those warnings when today's victims were buying their homes.

Councils such as Sheffield and Norwich which attempted to highlight the likely problems were overruled and overridden by Ministers, who threatened to step in and enforce the right to buy. Building societies such as the Halifax which predicted today's problems in writing to the Government in 1985 and again in 1987 were ignored. Government restrictions on service charge levels for the first five or 10 years of home ownership had the effect of disguising from potential buyers the likely cost of owning a council leasehold.

My Bill is intended to provide a long-overdue way out of this nightmare for the people affected by it and I have 960 tried to base it on four clear principles. First, there must be a national scheme and a national solution. The extent of the problem varies considerably from one local authority to another. It simply would not be realistic to ask individual local authorities to meet their own local problems from their own resources.

Secondly, wherever possible, current leaseholders must be assisted to sell their homes on the private market at a fair market value. Thirdly, any public costs involved must be kept to a reasonable minimum and represent good value for money. Fourthly, no scheme should unfairly take resources away from the urgent task of improving and repairing the homes of current and future council tenants.

It is on the basis of these four principles that I have drawn up the Bill. It will bring together the existing but inadequate powers of local authorities in a national and nationally funded scheme. In the first instance, local authorities would be required to draw up a scheme to identify flats which are unlikely to attract mortgage finance. Those schemes would need to be agreed with the Secretary of State. With the approval of the Secretary of State local authorities would then be required to offer a mortgage guarantee for all or part of the capital value of the flat. However, it is important to ensure that a mortgage lender who refused a loan based just on the nature of the property would be subject to action by extending the powers of the building societies ombudsman.

If in the end the guarantee were called, the local authority would have the choice of taking the property back into its own stock to let to someone from its waiting list, or of being reimbursed by the Government for the cost of meeting the guarantee.

Such an approach would help tens of thousands of leaseholders in the coming years and, by making properties marketable once again, would allow the price of those properties to be established at a level which reflected the relatively high service charges that council leaseholds are always likely to attract. But I also recognise that there will be some flats which, because of their structural condition and future repair costs, will probably never attract buyers, so the Bill also proposes that local authorities identify those properties and be enabled by the Government to repurchase them at a price reflecting any original discount.

That again should be funded by Government. The question of cost is bound to be raised, but in this case the logic of using local authority capital receipts, which were obtained by selling those flats in the first place, for the purpose of getting people out of this nightmare is unquestionable.

I do not believe that anyone denies that the problem exists or that it will be identified on an increasingly wide scale over the coming years, and the support that I have had for the Bill from hon. Members from Thurrock, Lewisham, Hampstead and Highgate, Waltham Forest, Greenwich, Sheffield, Plymouth and other parts of the country indicates the number who are experiencing these problems at first hand in their constituency advice surgeries.

It is now time for the Government to act. The problem has been dumped on local authorities for too long. There must be a national scheme, which should be funded and underwritten nationally. The Government must be prepared to stand up to the building societies. This Bill will enable the Government to do all three things.