BUILDING SOCIETIES (SPECIAL ADVANCES) ORDER 1971 (Hansard, 21 May 1971)

§ THE MINISTER OF STATE, DEPARTMENT OF HEALTH AND SOCIAL SECURITY (LORD ABERDARE)
My Lords, I beg to move that the Building Societies (Special Advances) Order 1971, laid before the House on May 3, be approved. If the draft order is approved, it will enable a building society to advance to an individual up to £13,000, instead of £10,000 as at present, without the society having to treat the advance as a " special advance " for the purpose of the Building Societies Act 1962.
Traditionally, the work of the building societies has been to lend money to owner-occupiers, and Parliament sought to recognise this in the Building Societies Act 1960, later consolidated in the Act of 1962. But the concept of owner-occupier was not easily caught within a statutory definition. The Act therefore defined as " special advances the part of building society business which was generally regarded as falling outside their traditional business of lending to owner-occupiers, and then put a limit on the proportion of its advances which a society could lend in the form of special advances.. The Acts defined " special advances " as all advances to companies and advances above a specified limit to individuals. The purpose of this Order is to raise this limit to £13,000,
The Building Societies Act 1960 originally set the limit at £5.000. which was then regarded as the normal maximum level of advance for an owner-occupier. But it was recognised in 1960 that the limit might need revising from time to time, and the Act included a provision to do this by Order. In 1963 the limit was raised to £7,000, and in 1967 it was raised to its present level of £ 10.000. The 746 Building Societies' Association have recently suggested to the Government that the limit should be raised to £15,000, but the Government have come to the conclusion that £13,000 is the right figure. This takes account of the general rise in house prices since 1967 and, as with the 1967 Order, to some extent makes allowance for future prices rises. It is of course for the building societies to decide, within the limits laid down in the Acts, their policy on special advances, but I am sure that the societies will be anxious to ensure that an increase in the limit to £13,000 will not reduce the amount of funds available for mortgages for smaller amounts. I invite the House to approve this Order.

§ LORD GREENWOOD OF ROSSENDALE
My Lords, the noble Lord has given a most lucid explanation of this Order and I do not think it is likely to provoke any opposition in your Lordships' House, but it is right that I should preface my own few remarks by saying that only yesterday I was invited by the Building Societies' Association to be one of their vice-presidents. I was delighted to accept, and I am very pleased to see the noble Earl, Lord Selkirk, the President of the Association, here to-day. The office which I now hold confers no financial advantages upon me, but it gives me an opportunity to demonstrate my belief in the social value of the building society movement, a belief of which I hope I gave some concrete proof in a previous incarnation.
I think the proposed increase in the limit of ordinary loans is a reasonable one. It is not an easy decision to take, and I think it is right that the views of the Registrar General should be given very careful consideration. In 1967 the figure went up to £10,000, as the noble Lord has reminded us, and the new increase to £13,000 takes care of the increase in house prices since that time. I think we should remember that the proportion of special advances, except in very unusual circumstances, is restricted, under Section 22 of the Act, to 10 per cent. I wish that my noble friend Lord Jacques could have been here to-day, because I know that this 747 is an aspect of the problem which interests him very much indeed.
It is also right, I think, to look at the general context of special advances, because I think that the effects of Sections 21 and 22 can be seen in the Registrar General's report for 1969, which showed that special advances by all societies in that year amounted to £22 million, or only 1.41 per cent, of all advances. The figure in 1968 was just over 2 per cent., and it is very unusual to find a society which goes very much higher than that. To go much higher than that figure would probably be undesirable.
Finally, I should like to express the hope that if the demand for mortgages does once again exceed the available resources the building societies will concentrate on the lower end of the scale, and so help more people to buy their houses than would otherwise be the case. This is a matter which, I for one, am happy to leave to the good sense of the societies, who show great social responsibility in matters of this kind and who have made a great contribution to helping solve the nation's housing problem.

§ LORD DAVIES OF LEEK
My Lords, I just want to endorse what my noble friend has said. I think a happy medium has been reached, but I hope that from time to time the Government will listen to the responsible approach of the building societies as and if they need to move the ceiling. I should take this opportunity of thanking the noble Lord opposite for bringing the Order forward to-day.

§ LORD OGMORE
My Lords, I should like to welcome the Order which is before your Lordships and ask the House to endorse it. I must declare an interest, in that I am chairman of a medium-sized building society, and we entirely agree with the objects of this Order. Before saying any more, I should like, if I may, to congratulate the noble Lord, Lord Greenwood of Rossendale, on his appointment as a vice-president of the Building Societies' Association, and I wish him every happiness in that important office. I felt when the noble Lord was a Minister that the building societies had a good friend in him. In spite of the pressure that was sometimes 748 put upon him by those less knowledgeable in that field than he is himself, he was always prepared to listen sympathetically to representations about the great problems that occasionally arise in the building society world.
As to the general proposition before us, I am certain from my own experience that it is quite time this limit for ordinary loans was raised to £13,000. Most building societies would be of the opinion that perhaps it would be better to raise it to £1 5,000. £13,000 being rather an odd amount. But £13,000 is better than £10,000; and, speaking for my own society, we welcome this advance. The point is that in Greater London, and in many of the great conurbations, and also in parts of the Home Counties, the purchase price of a house now is very often more than £13.000. The cost of what is called, I think, " middle-class housing"—anything other than the normal terraced house—is often £15,000 or more. I have three children, and five grandchildren, and one of the three children has just bought a house. As we all know, it is extremely difficult for young people to-day to save money for the deposit—and I am very glad to see that the Government have made a contribution in this field. In addition to that, young people know that they will have to buy furniture, carpets, and all the things necessary to set up a home, so that in many cases they are unable to produce the considerable sum required for the deposit. In effect, what happens is that they have to go to mortgage brokers outside the building society movement and pay exorbitant rates of interest, not so much to the brokers as to the various finance houses; or they have to get an insurance policy, which again is very costly. Therefore, every time one can raise the limit it helps a large number of young people who want to buy a more expensive house and who otherwise would have to pay very much more to service the loan—if, indeed, they could get the loan. That is the first point I want to make.
As to second point mentioned both by Lord Greenwood and Lord Davies of Leek, fortunately the building societies now have a large amount of funds available for house purchase. It is not going to affect the person who wants the £5,000 or £6,000 house at all. The combined assets of the building societies are £11.119 million. and they are all most anxious 749 to help the owner-occupier whether he wants to buy a very medium-priced house, £2,000 or £3,000, or a more expensive one. For this reason, I should like to endorse most emphatically what Mr. Amery said in another place on May 6. He said, regarding a high rate of advances: It is more important that they "— that is, the building societies— should have enough money to lend at present rates than that they should cut the rate and have to turn people away."—[OFFICIAL REPORT, Commons, 6/5/71, col. 1680.] I am glad to say that that was also Lord Greenwood's policy. He was quite right in that. I know he was under pressure to go the other way, but I commend him for the very realistic point of view he took on that matter. As both the previous Minister and the present one have taken this very realistic—and in my view, correct—point of view, I see no reason at all why the building societies should not be able to do a great deal to help the person who wants to buy the higher-price house—those persons of whom Lord Davies of Leek spoke. With these few words I should like to reiterate that I endorse and welcome the statement made by the noble Lord, Lord Aberdare.

THE EARL OF SELKIRK
My Lords, may I declare an interest in this matter as President of the Building Societies Association, an honourable but unremunerative occupation, in which I speak wholly without any authority of the organisation. The basis of this increase is said to be simply that the price of houses has doubled in ten years. This is a very serious matter indeed and of course it makes this Order absolutely necessary. It is a very unfortunate problem which we have to face. As the noble Lord, Lord Greenwood, has said, in the case of approximately 981½ per cent. of the money advanced no use whatsoever is made of special advances. Only a comparatively small number of the smaller societies use this at all.
I think the point made by the noble Lord, Lord Ogmore is important. I believe that one of the major tasks of the next twenty years or so will be in the centre of our big towns. Very big steps are being taken in this direction, and a great deal of money will be needed. I 750 believe the building societies must make a contribution to it. For that reason, I think it is desirable that they should be able to do so, although, frankly, at the present time they are not moving greatly in that direction. I believe it to be a great advance that owner-occupation is not now a political subject in this country; it is accepted absolutely by all sides of the House. I believe that progress in this view will be to the advantage of all political Parties.

§ LORD ABERDARE
My Lords, I am very grateful to all noble Lords who have supported this order. May I, too, congratulate the noble Lord, Lord Greenwood on his election as a vice-president of the Building Societies Association. The point was made by the noble Lord, Lord Greenwood, and also by the noble Lord, Lord Ogmore, of the need to provide mortgage facilities for those at the lower end of the scale who find it more difficult to put down money for a deposit. I think I should refer to the meeting which the noble Lord, Lord Ogmore, mentioned, between my right honourable friend the Minister for Housing and Construction and the Building Societies' Association. As a result of those discussions he said that the Association would advise its member societies that, first of all, if a man saves regularly with them for a period even as short as six months, and at a rate equivalent to his future monthly repayments, he should be favourably considered for an advance. That should benefit those who have not the necessary capital for a deposit. Secondly—

LORD OGMOREM
My Lords, I appreciate that and think it is a very good point that the Minister made, but the actual point that I was making was that in the case of option mortgages the Government have now decided to encourage 100 per cent. mortgages. That is a very important point indeed. The Government themselves will guarantee at least 5 per cent. of the advance. For instance, my own society already grants 95 per cent. in suitable cases, with a mortgage guarantee, but the Government are now going to cover that extra 5 per cent., which I think will be very valuable to young people starting life. Those are the people we particularly want to help.

§ LORD ABERDARE
My Lords, I much appreciate what the noble Lord has said from his long experience of this matter. I am glad that he welcomes the action of the Government. I was just referring to a way which I think would help those who might not otherwise be able to find deposits. I am grateful for the welcome given by the noble Lord, Lord Davies, and my noble friend Lord Selkirk.