Mortgage Interest Rates (Hansard, 29 June 1983)

§ Lord Pitt of Hampstead
My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

§ The Chancellor of the Duchy of Lancaster (Lord Cockfield)
My Lords, the Government regret that the building societies have decided to raise the recommended rate of interest to be charged to their borrowers. The building societies have to make their decisions in the light of the demand they face for mortgages and the flow of funds from depositors. These are matters for the commercial judgement of the societies and not for the Government.

§ Lord Pitt of Hampstead
My Lords, while I thank the Minister for that reply, it is obviously intended to indicate that the Government have no policy on mortgage interest rates. Am I right in assuming that?

§ Lord Cockfield
My Lords, rates of interest, as we have made clear on many occasions, are affected by market forces. It was market forces in the present instance which led the building societies to increase their recommended rate of interest.

§ Lord Kaldor
My Lords, will the Minister confirm that it was due to market forces that within 24 or 48 hours of the building societies raising their mortgage rates the big commercial banks proceeded to do the same? Why did they not do so before?

§ Lord Cockfield
My Lords, this merely illustrates the way that the market can, in fact, work. The banks have been tending to withdraw from the mortgage market. That has been one of the factors that has increased the demand on the building societies. That in turn has led the building societies to feel that they need a greater inflow of funds. It is to encourage that inflow that they have increased the rates they are paying to depositors.

Lord Bruce of Donington
My Lords, is the noble Lord aware that his answers to the questions put by my noble friend constitute a complete justification in his mind for the action taken by the building societies? Therefore, will the noble Lord explain how it is that the Government wish ostensibly to dissociate themselves from the action that has occurred, bearing in mind that the working of market forces to which the noble Lord referred is, of course, the policy of Her Majesty's Government?

§ Lord Cockfield
My Lords, if I understand the noble Lord's argument correctly, he is now claiming that he 248 is convinced by the reasons advanced by the building societies for their decision to raise interest rates. I was doing no more than explaining the circumstances that led them to take that decision. The decision, as I made clear in my reply to the original Question, was a decision taken by the building societies and not by the Government.

§ Lord Beswick
My Lords, can the noble Lord explain why, if the market forces are absolutely paramount, he regrets the fact that they operate?

§ Lord Cockfield
My Lords, there are plenty of things that one regrets in this ife, even if they are not one's own responsibility.

§ Lord Molloy
My Lords, is the noble Lord aware that in another place the Prime Minister, to her great credit, stated quite clearly that not only was she distressed at the rise in the mortgage interest rate, and showed her disapproval, but also she was disappointed? Why should there be one Conservative view in another place and another view here seeking to make excuses for the building societies deciding to raise interest rates and on which the Prime Minister said she was most disappointed?

§ Lord Cockfield
My Lords, I do not understand the distinction that the noble Lord is trying to draw between disapproval and regret. It seems to me that they both express the same reaction. I was simply trying to assist the noble Lord who asked the Question to understand the circumstances which led to the building societies taking their decision. However, it remains the responsibility of the building societies and not the responsibility of the Government.

§ Lord Renton
My Lords, why do not the present Government follow the practice of their predecessors in allowing the building societies to fix their own rates in accordance with the law of supply and demand?

A noble Lord
Their predecessors were a Tory Government.

§ Lord Cockfield
My Lords, my noble friend is entirely right in this matter. While I would not attempt to speak for the Opposition, I understand that they did not attempt to fix the rates of building society mortgage interest.

§ Lord Stewart of Fulham
My Lords, the noble Lord will have noticed that this increase occurred shortly after polling day and not shortly before. Does he ascribe that to market forces or to providence?

§ Lord Cockfield
My Lords, certainly that was not a matter in which the Government were in any way concerned. It is inevitable that certain events occur before polling day and certain events occur after polling day. I have no doubt that the fortunes of the Opposition stand much lower today than they did before polling day.

§ Lord Kennet
My Lords, does the fact that today the Government have come to regret and disapprove of 249 the operation of market forces, as British Governments did in the 1840s, mean that they will shortly begin to intervene in those operations, as British Governments did in the 1850s and 1860s?

§ Lord Cockfield
My Lords, I am not answerable for what the British Government may or may not have done in the 1850s and 1860s. If the noble Lord wishes to pursue that subject it is a matter singularly appropriate for the party to which he belongs.

§ Lord Kaldor
My Lords, does the noble Lord attribute to market forces the desire of the commercial banks to take away business from building societies? That is a new phenomenon. Does he agree that the building societies' move was forced on them by the policies of the commercial banks and that the commercial banks in turn responded so as to neutralise the effect on them of the building societies' action?

§ Lord Cockfield
My Lords, as the noble Lord says, there has undoubtedly been competition between the clearing banks and the building societies for mortgage business. I can see nothing wrong in that.

§ The Earl of Onslow
My Lords, have we not seen the disastrous result—especially during the time of the previous Government—of, I believe, the Callaghan Administration trying to subsidise mortgage rates directly? Did not that have a distorting effect on the market? Furthermore, surely this question arises because the Americans have such an enormous budget deficit and are having to borrow so much and are forcing interest rates up all over the world. Does the Minister agree that the sooner we get those down the more likely we are to have sustained and profitable growth?

§ Lord Cockfield
My Lords, I am grateful to my noble friend for what he has said. As regards the first part of his question, I have no information about what the Labour Administration may have done. On the second part of his question, it is a matter of regret—if I may be forgiven for using such a phrase—that American interest rates have tended to pull up interest rates elsewhere in the world.

§ Lord Plant
My Lords, do I understand from the reply of the noble Lord the Minister that the Government will refrain from increasing interest rates for the Savings Bank and savings certificates, over which they have some control?

§ Lord Cockfield
My Lords, they are really two quite different matters. So far a National Savings Certificates are concerned, obviously a decision is taken by Government, but it is a decision which is taken against the general background of market rates.

§ Lord Pitt of Hampstead
My Lords, would not the Minister agree that in fact the right to buy, by increasing the demand for mortgages (40 per cent. of which are handled by building societies), has put greater pressure on the building societies? Could not the Government help in two ways in connection with that? The first is by increasing the amount available for mortgages through the local authorities and the second 250 is by increasing the amount available for mortgages through the Trustee Savings Bank.

§ Lord Cockfield
My Lords, the noble Lord is now straying very far from the original Question on the Order Paper.

§ Lord Pitt of Hampstead
Not at all, my Lords. It is quite relevant.

§ Lord Cockfield
My Lords, the noble Lord is now straying very far from the original Question on the Order paper and he is putting forward proposals for the generation of mortgage funds from other sources. It is certainly not the intention of the Government themselves to go into the field of lending money on mortgage.

§ Lord Derwent
My Lords, have we not by now squeezed all the juice that is possible out of this Question?

§ Lord Cockfield
My Lords, I am grateful to my noble friend. I should myself have said, "out of this lemon."