Mortgage Rate Increase (Hansard, 17 October 1988)

§ Lord Young of Graffham
My Lords, it is in the long-term interest of everyone in this country that inflation is kept firmly under control. Movements in interest rates are a necessary part of achieving that end. The Government are of course aware of the problems which increases in mortgage rates can cause to some people and we regret that. I am convinced that a resurgency in inflation would be far more damaging. That is why my right honourable friend the Chancellor of the Exchequer has said that interest rates are likely to remain at their present level for some time.

§ Lord Molloy
My Lords, the fact of the matter is that the economy of the country was not under control and that is why we had to have an increase in mortage rates. The Chancellor of the Exchequer made some serious errors but, notwithstanding the fact—

Noble Lords
Question.

§ Lord Molloy
My Lords, notwithstanding the fact that inflation must be countered and held down, does the Minister not agree that the present method of high interest rates hurts and harms one sector of the British economy: those who are trying to buy their own homes? Not only is the agony of repossession a possibility but there is the fact that they, more than others, find the biggest burden that of meeting their mortgage payments. That they will do at all costs, yet, for trying to do so—

Noble Lords
Speech!

§ Lord Molloy
My Lords, for having the ability to tackle that they are being punished when they ought not to be. Have the Government considered an alternative method?

§ Lord Young of Graffham
My Lords, I do not agree in any way with the noble Lord, Lord Molloy, that the economy is out of control. The Chancellor has said that at the present time the resurgence of inflation must and will be dealt with and that the increase in interest rates is necessary to the economy.
Anyone taking out a mortgage should, at the time of doing so, take into account the fact that the interest rate, and therefore the monthly cost, is a variable figure. That should be taken into account and I am sure that most purchasers do so.

§ Lord Thorneycroft
My Lords, will the Minister agree that almost anyone setting out to try to control the excessive use of credit is bound to consider the price of money, and that the Chancellor's policy with 940 regard to the use of interest rates already appears to be meeting many of the objectives which he had in mind and is much to be commended?

§ Lord Young of Graffham
My Lords, I am grateful to my noble friend and I cannot disagree with one word.

§ Lord Mellish
My Lords, I readily understand the arguments that the Minister has put forward and recognise the fact that this matter has gone on for years and years; it has not suddenly happened. Nevertheless, does the Minister not agree that there is hardship, particularly for a young married couple who take out a mortgage for the first time in their lives and sign a contract. That contract says that they should pay 10 per cent. They have hardly moved before it has gone to 11 per cent., to 12 per cent. and then to 13 per cent. It is all very well to say that they should take that into account when they first take out a mortgage. I believe that the time is overdue for an understanding between the building societies and the Government on doing something to help them.

§ Lord Young of Graffham
My Lords, that is of course a matter for the building societies. It has been the practice, and I have no doubt it will continue, that where there are difficulties the building societies come to an accommodation with borrowers who have temporarily overstrectched themselves. The only figures I have— for the first half of this year—show that repossessions were down by some 19 per cent., which is a very significant reduction. It appears that there is a much greater corollary between levels of unemployment and repossession than anything else.

§ Lord Bruce-Gardyne
My Lords, is it not the case that there are far more people with deposits in building societies than there are people borrowing on mortgage? Is not the counterpart of the additional bill for those borrowing on mortgage the additional income to those who have deposits? Whose side are your Lordships supposed to be on?

§ Lord Young of Graffham
My Lords, I hope that all Members of your Lordships' House are on all sides. But, in this particular matter, it is the purchase of housing which is inflationary rather than the receipt of extra deposits.

§ Lord Stoddart of Swindon
My Lords, perhaps the noble Lord can tell us whether the capital bond, announced by the Chancellor at the Tory Party conference last week, is intended to be in competition with money which now goes to the building societies? If it is intended to be in competition, will that mean that there will be fewer home loans available to house buyers?

§ Lord Young of Graffham
My Lords, that is an entirely different question. If the noble Lord cares to table the question, I will ensure that it is answered.

§ Lord Monson
My Lords, following from the last question, does the noble Lord not agree that if the Government were to introduce a new conventional national savings certificate now at realistic rates of 941 interest so as to soak up surplus purchasing power instead of relying on the damp squib of the taxable national savings bonds to be introduced in three months' time, it might be possible to start reducing interest rates almost immediately?

§ Lord Young of Graffham
My Lords, that is to an even greater extent another question. I think the noble Lord should put it down for separate reply.

§ Lord Peston
My Lords, did I miss the Minister's answer to the second part of the Question of my noble friend Lord Molloy; namely, whether he can indicate when a reduction will take place? In particular, can the noble Lord reassure his own noble friends that the reduction will occur before the next general election?

§ Lord Young of Graffham
My Lords, I would anticipate that a reduction will take place when inflation is back under control; I assume that that will be before the next general election.

Lord Bruce of Donington
My Lords, is the noble Lord aware that it is small comfort to those with mortgages and paying high interest to realise that the reason the Chancellor cannot and dare not reduce interest rates at present or in the foreseeable future is that it would result in the outflow of hot money and portfolio investment which has flooded into this country since interest rates were raised?

§ Lord Young of Graffham
My Lords, no. The purpose of raising interest rates was simply to dampen down the rise in inflation, and that objective will be achieved.

§ Lord Molloy
My Lords, is the Minister not aware of the important point made by my noble friend Lord Mellish about young couples trying to buy their houses? They feel very bitter and angry that, from their point of view, they should have been picked on. When the noble Lord, Lord Thorneycroft, made his point, he forgot to mention that there are hundreds of thousands whose tax relief for one year amounts to more than many of those home buyers earn in a year. That causes disparity and bitterness. It makes people begin to believe that the British man's home is not his castle but, under this Government, his burden.

§ Lord Young of Graffham
My Lords, I fail to detect any question from the noble Lord.

§ Lord Diamond
My Lords, does the Minister not feel that these exchanges indicate real hardship among borrowers, particularly those borrowing for the first time to provide themselves with a new home? Will he consider whether there are any means by which the Government can encourage the issue of fixed interest mortgages?

§ Lord Young of Graffham
My Lords, I am well aware that some who have borrowed for the very first time may have overcommitted themselves by not foreseeing that interest rates could rise as well as fall. I very much regret that on their behalf; I am sure that if there is real difficulty and they approach the 942 institution or building society which advanced the loan, that institution will take whatever steps possible to ameliorate their position. It is not for the Government to act in such matters. It is for the Government to be here to ensure that inflation is kept down and that the economy continues to grow as it has been growing over the last eight years.