Negative Equity (Hansard, 30 June 1994)

§ 7. Mr. Battle
To ask the Chancellor of the Exchequer what is his latest estimate of the impact of the rate of inflation on negative equity in the housing market.

§ Mr. Nelson
House prices have clearly increased since their trough in the first half of 1993, reducing negative equity. The latest estimate is that the number of households with negative equity has fallen by nearly 30 per cent. since the first quarter of 1993.

§ Mr. Battle
The housing market continues to bump along in the depths of the recession. Is not the Minister aware that 800 families lose their homes through repossession every week? Is not he aware that one in 17 families are in serious arrears with their mortgages and that 1.5 million families have negative equity on their homes? Does not he accept that the Chief Secretary's proposals to abolish or further restrict income support payments to home owners who lose their jobs will not only kill off the housing market but throw thousands of families on to the streets?

§ Mr. Nelson
The hon. Gentleman should check his facts, particularly about the number of people with negative equity, because there are now 500,000 fewer people with negative equity and he should welcome that. The fact is that court repossessions have fallen by 55 per cent. since 1991 and arrears have been reduced by nearly 936 10 per cent. The hon. Gentleman should welcome those improvements instead of suggesting that we should in some way inflate the property market to try to get rid of negative equity. That would be no answer to the problems of those with negative equity.

§ Mr. Waterson
Does my hon. Friend agree that one of the major reasons why the level of negative equity and debt overhang is coming down so rapidly, contrary to what the hon. Member for Leeds, West (Mr. Battle) has suggested, is that many people have prudently maintained their monthly payments at the same level even though interest rates have been falling?

§ Mr. Nelson
Yes. Many people have been able to reduce their negative equity, not so much because house prices have increased but because they have been able to reduce their indebtedness. The fact that we have been able to get interest rates down by such a significant extent is worth £160 a month off mortgage payments. That has meant that, in many cases, people have been able to reduce the negative equity in their property. That is reflected in the excellent figures and progress to which I referred earlier.

§ Mr. Darling
Does the Chancellor agree with the Governor of the Bank of England's assessment that interest rates are likely to rise? If that is the case, what will that do to the housing market and to the recovery?

§ Mr. Nelson
I never speculate, and nor will my right hon. and learned Friend the Chancellor of the Exchequer, on the future level of interest rates. What we do say is that the prospects for a revival in house prices—a gentle, not a massively inflationary increase—and the prospects for improving activity and transaction in that market are more likely to be served by a sound and steady recovery in the economy. We are seeing just that and it is clearly illustrated in the summer economic forecast published earlier this week. All that suggests that the forecasts, not just of the Government but of outside organisations such as the house builders, that house prices will continue to rise this year and next, will be met to the health and welfare of the housing market and home owners.

§ Mr. Duncan
In view of the Chancellor's two most recent speeches, will my hon. Friend convey to him my particular congratulations on his Mansion House speech? Does he accept that the question calls for a dangerous regime in which people will be deluded about the value of their assets? They will consider their houses as a source of riches on which they can regularly draw, but, in reality, they will achieve an economy in which productive resources are denied the long-term investment which this country so desperately requires.

§ Mr. Nelson
I very much agree with my hon. Friend. I hope that nobody in the House would seek to sustain the argument that the price of properties should consistently rise by more than inflation or the economy as a whole. Such a course would simply divert resources into fixed rather than productive assets. There would also be serious implications for first-time buyers, for whom properties would become much less affordable. There must be a relationship between the growth of the economy, the level of inflation and house prices. We do not want that to get out of synch.