HL Deb 07 December 1967 vol 287 cc785-92

3.25 p.m.

LORD BESWICK

My Lords, this draft Order, if approved, will enable a building society to advance to an individual up to £10,000, instead of £7,000 as at present, without the society having to treat the advance as a "special advance" for the purposes of the Building Societies Act 1962. Special advances are defined as advances, of whatever amount, to companies, and advances of more than a certain amount to persons. It is this "certain amount" to which the Order relates.

The amount was fixed at £5,000 by the Building Societies Act 1960, because it was felt at that time that £5,000 broadly represented a reasonable limit on what could be regarded as a normal type of advance for the ordinary owner-occupier. An Order was made in 1963 increasing the limit from £5,000 to £7,000. This reflected mainly the increase in house prices over the period. It also reflected in part an increase in the demand for the more expensive type of housing that came with the general development of housing standards and standards of living. For similar reasons the Building Societies Association suggested to the Government that the time had come to make a further increase in this figure.

The building societies have assured us that raising the limit for special advances from £7,000 to £10,000 will not lead them to be more restrictive in granting mortgages for smaller amounts. We have made it clear to the building societies that, in moving to £10,000, we reckon that we are not only allowing for the increases of prices that have occurred in the last four years, but also to some extent discounting the future. I hope that with this explanation the House will feel able to approve the draft Order. I beg to move.

Moved, That the Draft Building Societies (Special Advances) Order 1967, laid before the House on November 14, be approved.—(Lord Beswick.)

LORD NEWTON

My Lords, I am sure the House is grateful, as I am, to the noble Lord the Chief Whip for his explanation of this Order. I am certainly not going to suggest to your Lordships that this Order should be opposed; indeed, there is no doubt that at this time there is a need for this Order. But that is not to say that the need for this Order is to be welcomed; because it is not. The noble Lord has told us that this Order raises from £7,000 to £10,000 the amount of the advance which the building societies may make to owner-occupiers before any higher advance becomes what is called a "special advance". It may be thought that this proposal constitutes a useful encouragement to home ownership, but of course it does not do anything of the kind. Something like this Order is required entirely because of the fall in the value of money over the last few years and the resulting increase in the price of building a modest-sized house.

The noble Lord has told us that the building societies themselves asked for something like this, and I understand that they informed the Government that unless the limit on the basic advance was raised they would not be able to continue properly to carry out their function in giving adequate assistance to the man who wants to have a small house of his own. The question then is whether this proposed new limit of £10,000 is high enough. Is it going to do more than restore the status quo of 1964? I understand from what the noble Lord has said that the Government think it will, and he also suggested that it includes a small margin against future price increases. I have considerable doubts about that, because of devaluation. Many people to-day believe that because higher prices will have to be paid for imported materials for building, the cost of building even a modest house will go up by 4 or 5 per cent. If that happens, I should have thought it was fairly obvious that the limit of £10,000 will not be high enough; and of course if it is not high enough we must expect that fewer houses will be built in this country for owner occupation.

Let us suppose that the proposed increase of the limit to £10,000 will cover both the price increases of the past and any future ones consequent upon devaluation. In other words, if raising the limit to £10,000 is going to maintain the rate of building houses for owner occupation one cannot help wondering whether the proposed increase in the limit comes within Mr. Callaghan's Letter of intent to the International Monetary Fund. However that may be, there is no doubt that something like this Order is needed to-day; but equally it is not a matter for congratulation.

3.32 p.m.

LORD PEDDIE

My Lords,—

LORD OGMORE

My Lords, I think it is usual on these occasions for the representatives of the two Opposition Parties to speak before a Back-Bencher on the other side, but I stand to be corrected if I am wrong.

From these Benches I should like to welcome this Order without the rider put to it by the noble Lord, Lord Newton, because I do not believe that since 1964, when the Labour Party came into office, the price of a house has gone up by £3,000. In fact, the building societies were asking for this increase before 1964. I have to declare an interest in that I am a director of a building society, and I know very well that my society, and undoubtedly many others, welcome this increase and thank the Government for it. We believe it will do a great deal to enable us to help people to achieve their object of buying their own house. For various reasons new houses are getting more expensive; land is dear, materials are dear, and the standards of housing are rising all the time, which of course is a good thing. What could be built for £5,000 or £6,000 ten or fifteen years ago possibly is built for £7,000 or £8,000 to-day. Therefore this is a step in the right direction.

One thing I should like to take up with the Minister is his statement that the Government suggest that there should not be any further increase for some years to come. I think we must leave this to the Registrar. If he feels that in the interest of the building societies' movement and of getting houses for people it is desirable that the special advances should go up, then Parliament should pass the necessary Orders providing for the increase in the special advance. As your Lordships know, in order to provide one mortgage of £10,000 for a house a building society has to advance £100,000 on other types of houses of less than that figure, so it means that a considerable amount of money has to be raised by building societies even to provide £10,000 a time for houses. I want that to be borne in mind, because it is always in the minds of directors of building societies, realising that they are very much restricted in advancing moneys on new houses to even the limit of £10,000. Up to now it has been £7,000. Nevertheless, I am grateful for comparatively small mercies, and I thank the Government for what they propose.

There is one question of interpretation that I should like to put in regard to paragraph 3 of the Order. I take it that this means that the Order, if it is passed by your Lordships to-day (it has already been passed by another place), will come into operation to-morrow, so any building society whose accounts close on December 31 will reap the benefit of this Order next year. Perhaps the Minister will be good enough to confirm that this is correct.

LORD BESWICK

No, my Lords.

LORD OGMORE

It is not correct?

3.36 p.m.

LORD PEDDIE

My Lords, I am sure the building society movement warmly welcomes this Order. The noble Lord, Lord Newton, referred to the increase in the price of houses and expressed the view that this was the sole reason for this Order. I think your Lordships would agree that we all deplore the rise in the price of houses, but that is a circumstance which is not associated with the conditions of the past three or four years alone; it is something that was on its way for a long period before the present Government came into power. This Order will certainly encourage home ownership, although the noble Lord, Lord Newton, cast some doubts on whether that was so. It will be of assistance to a special class that deserves consideration; namely, the young executive class (and particularly in the South-East of England), who in recent times because of the limitation of £7,000 have felt some restriction in securing the sort of house they need and deserve. The increase from £7,000 to £10,000 will widen the scope and make it possible for advances to be made to that particular class of person without impinging upon the special advances. I think from all standpoints this is quite a worthy Order; one which is warmly welcomed and which will make a considerable contribution towards encouraging home ownership.

3.39 p.m.

LORD SILKIN

My Lords, I am not a director of a building society and I should like to say a few words on behalf of those who are not. I have sonic doubts about this Order because it introduces a new type of person who will now be able to obtain an advance from a building society. The noble Lord, Lord Peddie, has just referred to the executive classes and those of higher incomes. I have no objection to them per se, but I am wondering what is going to happen to those of lower incomes who make applications for advances. The fact is that even the funds of building societies are limited, particularly now, in view of the bank rate, which is very high, and the fact that lending to a building society is no longer as attractive as it was formerly, and it probably will not be for a considerable time. Therefore, we must expect that the funds of building societies will not increase and may possibly decrease. I think that there are some signs of that already.

The result of this will be, therefore, that the amount available to buy houses for £5,000, £6,000 or £7,000 will be reduced in favour of people who buy more expensive houses. A building society has not unlimited funds, and to the extent that the lending on higher priced houses is increased it will have to reduce advances on lower priced houses. We are talking now of a house which is going to cost anything from £12,000 to £15,000. Of course, no one can seriously contend that that increase in range is due to any rise in the cost of houses or of land. It is in fact a new type of house that we are going to finance. I should like to have some assurance, if the Minister can give it, that loans to people with lower incomes and cheaper houses will not suffer as a result of this increase in the facilities for lending up to £10,000.

LORD ROYLE

My Lords, I also declare the same interest as the noble Lord, Lord Ogmore, but I feel that the fears of my noble friend, Lord Silkin, are not justified in any sense at all. It has to be remembered and stressed that under the 1952 Building Societies Act only 10 per cent. of special advances were allowed, and as the noble Lord, Lord Ogmore, says, if it is an advance of £10,000 in one instance then at least £100,000 has to be found for the smaller type houses. That is the point which has to be stressed. At the same time, building society's experience teaches that in the main nothing like 10 per cent. is ever used, and the vast majority of the loans which come into operation are for much lower priced houses. I do not think there is any risk at all. This suggestion meets with the full approval of the Building Societies Association and I think every building society in the country. I am confident it is a step in the right direction.

3.43 p.m.

LORD BESWICK

My Lords, I am grateful to my noble friends Lord Peddie, Lord Royle and Lord Silkin for putting into proper perspective, if I may say so, the political gibes of the noble Lord, Lord Newton. With respect, he was not too helpful on this matter. This is a question of meeting the wishes of the building societies. It is not simply a matter of the decrease in the value of money; it is to some extent one of improvement in the standard of housing. As my noble friend Lord Peddie has said, the decrease in the value of money has not come simply in the last three years; it was there before. The decrease in the value of money is a factor which we all ought to accept as a common responsibility, and it is a common task of all in this country to try to deal with it. If may say so, I did not think the attitude adopted by some of the noble Lord's friends on the earlier Question helped with the task of trying to secure a stable currency.

I am grateful to my noble friend Lord Royle for answering the noble Lord, Lord Silkin, on his point about ensuring that those who seek to borrow for a lower priced house will not be penalised as a result of this increase in the total amount which the building societies can now offer to any given borrower. These special advances are so defined that they are a limited percentage of the total advances of any building society. As my noble friend Lord Royle said, the maximum is 10 per cent., although in the case of certain building societies which in the past provided loans for this category of borrower before the present Act came into operation the limit was often lower than 10 per cent., and I think in some cases was 2½ per cent. So I can say to my noble friend Lord Silkin that the fears that he has are recognised and have been met by this limitation.

LORD SILKIN

My Lords, may I just clear up one point? These advances between £7,000 and £10,000 will no longer be special advances. They will come out of the general funds. Is that not so?

LORD BESWICK

That is right. The special advances will now be over £10,000.

LORD SILKIN

Therefore, this 2½ per cent. or 5 per cent. no longer applies. Theoretically a building society could advance the whole of its loans to people who want £10,000 each.

LORD BESWICK

My Lords, I take my noble friend's point. What he is saying is that the ability to lend a sum between £7,000 and £10,000, without its being counted as a special advance, is giving to the building societies a freedom which they did not previously enjoy. But I think we all agree that the type of person who is now borrowing, say, £7,000 to £8,000 is the type of person who ten years ago would have been borrowing £5,000 to £6,000, so that we are not in fact restricting advances and we shall not be penalising those persons who wish to buy the smaller house. Moreover, the building societies have given an assurance that their policy as regards the spread of risk over all categories of borrowers will be maintained, and I think my noble friend will find that it will not be the policy of any building society to concentrate its band of borrowers on those wishing to borrow between £7,000 and £10,000.

The noble Lord, Lord Ogmore, asked about the operation of this Order. The Order itself will come into operation immediately it has been approved by both Houses of Parliament, but the operation of the Order will extend this limit to the building societies only from the beginning of their respective financial years. I think that answers all the questions, and I hope the House will now be able to approve the Order.

On Question, Motion agreed to.