Mortgage Rate Increases: Effects (Hansard, 11 October 1988)

The Earl of Caithness
My Lords, the increase in mortgage interest rates is likely to have some restraining effect on the rise in house prices, and perhaps also on the number of houses sold.

§ Lord Dean of Beswick
My Lords, I am grateful to the Minister for that reply. However, does he not agree that one of the most serious aspects of this substantial increase is that it will seriously retard the house-building programme in general both in the public sector, which was pretty stagnant anyway, and in the private sector, which was showing considerable improvement in the numbers of houses started and completed. What advice can he or the Government give to people who, a few months ago, borrowed money at around 10 per cent. and now find that they have to pay a 30 per cent. increase in their mortgage interest repayments and who, through no fault of their own, find themselves in serious financial difficulty?

The Earl of Caithness
My Lords, in answer to the last part of the noble Lord's supplementary question, the building societies and the banks which have arranged mortgages have written to all those who are affected. I know that they have offered help either by suggesting a different date by which repayment should be made or by making other arrangements. It is too early to say whether it will retard house-building in general. However. I am able to take this 722 opportunity to confirm to your Lordships that this year we are building more houses in the private sector than since 1972.

§ Lord Peston
My Lords, does the Minister agree with his right honourable friend Mr. Biffen, who yesterday advised the Chancellor of the Exchequer that he must limit the present relief on mortgage interest because one of the most powerful inflationary factors must be the rise in house prices?

The Earl of Caithness
My Lords, one of the reasons that interest rates were increased by my right honourable friend the Chancellor of the Exchequer was indeed to curb inflation.

Lord Winstanley
My Lords, can the noble Earl say a little more about the effect of the rise in mortgage interest rates on those who have to pay them, and in particular on those who have been induced to buy council houses which they cannot really afford? Can he tell us whether there have been any more tragic cases of council houses being repossessed because of the inability to maintain payments?

The Earl of Caithness
My Lords, I can tell the noble Lord that in the first half of 1988 the number of repossessions was down 16 per cent. on a year earlier.

§ Lord Underhill
My Lords, the noble Earl has given some figures. But is he aware that those figures disagree with the view expressed only recently by the Building Societies Association, which is concerned at the number of people who are unable to meet their commitments and whose houses are being repossessed?

The Earl of Caithness
My Lords, for very many years houses have been repossessed when people have not been able to meet their commitments. What I have been able to confirm to the House is that in the first half of this year repossessions were down 16 per cent. on a year earlier. There are some 7,280,000 mortgages and there were 9,770 repossessions in the first six months of the year.

§ Lord Graham of Edmonton
My Lords, does the Minister care that the high cost of borrowing very much affects the ability of people to build houses to let at affordable rents? Will he bear in mind that he can do a great deal to relieve that position by reversing his policy of starving councils of the necessary moneys to build houses for rent?

The Earl of Caithness
My Lords, as the noble Lord knows full well from our recent debates, we are seeking to encourage the rented sector. We seek not only to increase the number of houses available to rent but also to enlarge the diversity in the type of houses available.

§ Lord Stoddart of Swindon
My Lords, does the noble Earl agree that it was sheer ineptitude for the Chancellor of the Exchequer to announce on the 15th March that he was going to abolish double mortgage tax relief on 1st August, thus inducing a gathering 723 gallop to buy houses before the closing date? Did that not in part cause the boom in consumer expenditure which now has to be curtailed by increasing the mortgage interest rate and other interest rates? Have not the Chancellor and the Government by this policy done untold harm to the prospects for first-time home buyers?

The Earl of Caithness
My Lords, no. I totally disagree with the noble Lord. Since 1979 there have been 4 million first-time home buyers. There were 620,000 alone last year.

§ Lord Dean of Beswick
My Lords, I am grateful to the Minister. The House will welcome his statement that the building societies are taking measures to ameliorate the situation. However, is he aware that there seems to be a consensus among housing associations and other such organisations that the number of lapses on mortgage repayments and hence the number of repossessions, are bound to increase?
The Minister said that there had been a 16 per cent. reduction in mortgage lapses with houses having to be repossessed. Does that not relate to a period when mortgage interest rates were running at between 10 and 11 per cent. and not at the present high rate of 13 per cent.?

The Earl of Caithness
My Lords, my figures were for the first half of 1988. They are the most up-to-date figures that I am able to give your Lordships.

§ Lord Taylor of Gryfe
My Lords, in view of the unfortunate consequences of this policy which have been described this afternoon, will the Minister make representations to his right honourable friend the Chancellor of the Exchequer and the Department of Trade and Industry for direct credit controls as an alternative to this method of controlling inflation?

The Earl of Caithness
My Lords, my right honourable friend the Chancellor of the Exchequer on numerous occasions has answered the question put by the noble Lord.

§ Lord Underhill
My Lords, the Minister took pride in the fact that there has been an increase in private house building. Has he any comments to make on the fact that the building of council houses for rent—a subject with which we shall be dealing later this afternoon—is the lowest for a considerable number of years? I do not have the year, but it must be a period of about 20 years.

The Earl of Caithness
My Lords, yes. I have many comments to make but I shall not weary your Lordships with a full exposition of them. We need a vibrant and viable rented sector. It needs to be diversified from the monolithic blocks of some local authorities.