OPTION MORTGAGES (Hansard, 3 December 1973)

§ THE EARL OF KINNOULL
My Lords, I beg leave to ask the only Question which stands on the Order Paper.

§ LORD MOWBRAY AND STOURTON
No, my Lords. The Government raised the house price limit for the option mortgage guarantee scheme from £5,000 to £7,500 in 1971. There has been no demand from lenders or potential borrowers for an increase in the limit.

§ THE EARL OF KINNOULL
My Lords, I am grateful to my noble friend for that Answer. Is he aware—and here I must disclose my interest—that there is one building society of not a moderate size (and I suspect there are many others) who would welcome the Government review of the option mortgage limit? Is he further aware that when the Government last reviewed this limit in 1971 the price index figure stood at 144, as against 116 when the scheme started in 1967? Is he finally aware that to-day the same price index figure stands at 256? Is that not justification enough for a review?

§ LORD MOWBRAY AND STOURTON
My Lords, the higher priced houses will be bought by people outside the housing option mortgage guarantee scheme and therefore it does not apply. We have taken steps to increase the option mortgage subsidy as from January 1, 1974, which will keep it in line with tax reliefs at interest rates which are higher than 10½ per cent. I think that covers the points raised by my noble friend.

§ LORD ROYLE
My Lords, would it not be right to remind ourselves that 312 £10,000 is a very ordinary sort of mortgage in these days? There are in fact thousands of people purchasing properties which we should have regarded, five years ago, as being worth perhaps £6,000 but which are certainly worth £10,000 to-day. Would it not be a splendid contribution on the part of the Government to help people who are having the utmost difficulty in obtaining mortgages?

§ LORD MOWBRAY AND STOURTON
My Lords, I take the point raised by the noble Lord but I must refer him to my first answer. There has been no demand from borrowers or lenders to raise the figure to £10,000. According to a sample taken by the building societies, 31 per cent. of all dwellings mortgaged with building societies in the United Kingdom in the third quarter of this year cost under £7,500.

§ THE EARL OF KINNOULL
My Lords, I wonder whether I may ask a further supplementary question, following on what my noble friend has just said. To quote the average house prices, nation wide, in the North East the figure was £7,800 for the third quarter while in London and the South East it was £13,700. Is that not a strong case for the introduction of a regional limit for the option mortgage scheme?

§ LORD MOWBRAY AND STOURTON
My Lords, my noble friend will know that the Government have taken note of the regional schemes for various housing improvements, but building societies have the main responsibility for mortgages and the Government assist to only a small degree. The matter was discussed with the building societies when the present limit was agreed in 1971, but it was then considered to be too difficult to have regional variations.

§ LORD ROYLE
My Lords, for the sake of clarity, may I ask the noble Lord, when he quotes a figure of £7,500, whether he is referring to the actual purchase price or to what was lent on mortgage?

§ LORD MOWBRAY AND STOURTON
My Lords, this refers to the option mortgage guarantee scheme only. I should like to emphasise that the option mortgage scheme does not have a limit. It is only the option mortgage guarantee scheme which has a limit, and of all the 313 option mortgages which are taken out, just over one half are taken out with the guarantee scheme. There has been no demand for an increase in the guarantee scheme.

§ THE EARL OF KINNOULL
My Lords, may I ask one final supplementary question: whether my noble friend's right honourable friend will consider introducing 100 per cent. mortgage facilities under the new low start mortgage scheme? And will he not agree that the 100 per cent. mortgage offers considerable help to many young couples and may avoid their being forced into the expensive clutches of the second mortgage market?

§ LORD MOWBRAY AND STOURTON
My Lords, my noble friend is referring to the proposed deferred interest mortgage scheme for first time purchasers. This is of course different from the subject of option mortgages which is under discussion, and the option mortgage guarantee scheme in particular. Detailed arrangements for the deferred interest scheme have not been finalised; they are still under discussion with the Building Societies Association. I think I should take note of the point raised by my noble friend and if I can find any further information I will either write to him or inform the House.

§ LORD BEAUMONT OF WHITLEY
My Lords, on what do the Government depend for their information as to the demand from borrowers?

§ LORD MOWBRAY AND STOURTON
My Lords, the building societies.

§ BARONESS WHITE
My Lords, with great respect to the noble Lord, surely it is not the building societies who deal with the option mortgage scheme; therefore there must be other sources of information open to Her Majesty's Government. Would not the noble Lord agree that any sum which was appropriate in 1971 must be inappropriate to-day?

§ LORD MOWBRAY AND STOURTON
My Lords, the option mortgage guarantee scheme is dealing with about one half of one per cent. or 1½ per cent. of the once-and-for-all premiums. This is paid on the increase over the usual percentage limit for an advance by up to 25 per cent. of the valuation of a property; that is, up to 100 per cent. if their normal advance limit is 75 per cent. This is 314 dealt with under the option mortgage guarantee scheme, as the noble Baroness commented, on a single premium. In the case of the option mortgage guarantee scheme, the Government share the risk with the companies and therefore, if it is under 95 per cent. there is, I think, 2½ per cent. interest on that one single premium. So for example, if the figure were £1,500 the premium would be £60, which is added to the total cost. We are talking about the difference between 2½ per cent., 3½ per cent. and 4 per cent.

§ LORD LEATHERLAND
My Lords, does not the noble Lord think that that informative answer really skirts round the frills of the question? Does he not think the real question is, what should the Government be doing to bring down the price of houses, which has increased so enormously while his Government have been in office? Furthermore, does he not think that the concrete way of bringing down the price of houses is to see that more are built, instead of fewer? It is a fact that fewer houses are now being built than at any time during the last 10 or 11 years.

§ LORD MOWBRAY AND STOURTON
My Lords, this discussion has become slightly wide of the original Question, but may I say to the noble Lord, Lord Leatherland, that in the last 12 months for which figures are ascertainable the actual figure for houses which have been completed and improved is just over half a million. This Government have changed the policy slightly; we have improved old houses which otherwise would have been condemned. I agree with much of what the noble Lord, Lord Leatherland, said about bringing down house prices, but although the answers that I gave on the option mortgage guarantee scheme were a little involved. the difference in the amount of interest between these top figures and the ones for all premiums is really very small.

§ LORD SLATER
My Lords, is the noble Lord aware that he is basing his answers on a dangerous supposition when he quotes the building societies only? What about local authorities? Are they not in a position where they can grant mortgages to applicants?

§ LORD MOWBRAY AND STOURTON
My Lords, I have no information at my disposal which leads me to suppose that 315 the average building society loans are different from the average local authority loans.

§ LORD ROYLE
My Lords, could not the noble Lord persuade his noble friend Lord Kinnoull to put down an Unstarred Question, so that we might have the opportunity of questioning the answers which have been trotted out?

§ LORD MOWBRAY AND STOURTON
My Lords, I am sure my noble friend would be delighted.

§ LORD WIGG
My Lords, I am sure that everyone sympathises with the noble Lord, Lord Mowbray, because some of the supplementary questions have become rather wide of the original Question; but when he finds himself in difficulties he really ought not to quote statistics which have nothing to do with it at all. He really ought not to bring in—

§ LORD WIGG
I intend to put my question in my own time and in the same way as some questions have been put by others of my noble colleagues on other occasions. Is the noble Lord aware that it is unwise, when making a comparison between houses completed, because he is ashamed of the answer, suddenly to start talking about improvements, something which previous Administrations have not carried out before, just because he wants to use that particular stick to beat the Labour Party?

§ LORD MOWBRAY AND STOURTON
My Lords, the question that was asked by one of the noble Lord's colleagues did go wide of the Question on the Order Paper, as I pointed out, but I thought I was entitled to say that we had changed the emphasis from new building to improved houses which otherwise would have been pulled down and lost to the housing stock.

§ LORD WIGG
My Lords, is the noble Lord aware that, when he quotes improvements, they could amount to just putting on a lick of paint or putting in a sink? This is not comparable with completed houses.

§ LORD MOWBRAY AND STOURTON
My Lords, I have been talking about improvements which have qualified for 316 discretionary or standard grants. This is not "just putting on a lick of paint".