§ 6.15 p.m.
§ Lord Ross of Newport rose to call attention to the increasing number of mortgage repossessions, and to the case for finding other ways of dealing with mortgage debt; and to move for Papers.
§ The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. Housing policy in Britain is in disarray. The certainties which at the beginning of the 1980s were to create the climate in which the private sector would meet housing needs no longer exist. Rather than a buoyant private sector removing the need for state intervention in housing, the problems of housing supply, access and homelessness have become so severe that the Government have begun to do things which they previously stated were unnecessary, namely, to develop support for social rented housing through housing associations and to acknowledge the need for special initiatives in relation to homelessness. Those are not my words but those of Professor Alan Murie of Heriot-Watt University, writing in the current edition of Housing Review.
§ As one among many who has warned in previous debates in this House that relying too much on the private sector would never work, I say at once that I greatly welcome that recent change of heart on the part of the Government. I also particularly welcome—although he has been there for more than a year now—the appointment of Sir George Young as 787 Minister for housing. That he has all the necessary qualifications for his post there is no doubt, which could hardly be said of some of his predecessors.
§ My intention in this short debate is not to go over past history but to try to suggest further initiatives which we believe are essential if the present critical situation is to be ameliorated. The hope is that that may strengthen the resolve of the Minister when arguing his case for the additional financial resources which are so obviously needed.
§ That there is a serious crisis there can be no doubt. According to statistics appearing in the November edition of Housing Finance issued by the Council of Mortgage Lenders, which includes building societies and banks, at the end of 1990 the number of properties mortgaged to individuals in this country had risen to no less than 9,415,000. In 1990 43,890 of those had been taken back into possession by the lender or voluntarily surrendered, as it appears some people are doing. Presumably those properties have either been sold or are up for sale. That represents some 0.47 per cent. of the total number of houses mortgaged. It is worrying that at the end of 1990 mortgages in excess of six months in arrears totalled no less than 123,110 —a huge increase on the previous figure.
§ I suggest that that is not very surprising when in some cases people have entered into mortgages which call for about 44 per cent. of their net income in mortgage repayments. The overall average is 26 per cent., which is still far too high. Nevertheless, in those years some people have taken on commitments which require nearly half of their net income.
§ It is widely quoted that by the end of this month the number of repossessions for the year 1990–91 will have risen to between 75,000 and 100,000. On Monday of this week alone 68 properties were included in one London auction on the instructions of the Halifax Building Society.
§ I am a chartered surveyor—I still pay my sub, although I do not practise—and I have some knowledge of the property industry. The Estates Gazette, which comes out every week, was my bible. It is pretty horrifying to flip through the pages of the Estates Gazette today. Indeed, additional lines have been installed at some auctioneers' offices. The number of properties being sold because of bankruptcy is staggering; in fact it is horrible.
§ In Sunday's Observer newspaper, Mr. Peter Spencer, who is an economic analyst with the merchant bankers Lehman Brothers, suggests that the natural progression of those people who are six months in arrears probably means that repossessions might reach no less a figure than a quarter of a million next year. In the Sunday Times, Mr. Tim Melville-Ross, who is the chief executive of the Nationwide Building Society, is quoted as saying that a figure of 150,000 repossessed houses on the market next year might be a conservative estimate. We are probably therefore talking in terms of up to a quarter of a million properties.
§ I have had the advantage of a brief from the Eagle Star Insurance Company which, among others, is losing a great deal of money at present because it and 788 others took on the extra 20 per cent. of the risk of the loans of people taking up mortgages of 95 or even 100 per cent. It says that the principal features of the present situation and the outlook for the short and medium term are that house prices have fallen on average by over 15 per cent. nationally since the peak in 1989 and by 26 per cent. in the South. There has been a dramatic rise in the number of mortgages seriously in arrears and in repossession of homes by lenders as a result of home owners' financial difficulties. Repossessed homes are likely to account for up to 17 per cent. of the reduced number of property transactions in the South in the next year.
§ The fall in house values, coupled with a high percentage average mortgage advance, has given rise to a negative equity position amounting to an estimated £3 billion for first-time borrowers since 1985. The fact that borrowings exceed the current valuation of the property has in many cases reduced the incentive to keep up with mortgage payments, contributing to the pool of arrears and repossessions. Losses to lenders on actual and prospective repossessions are estimated to total more than £3 billion, including realisation costs assuming that house prices fall no further. As I said earlier, the major part of that loss will fall on insurance companies under mortgage indemnity policies taken out in connection with loans, although it is believed that a significant proportion will also fall on building societies and other lenders, including banks.
§ Economic forecasts which predict a significant rise in house prices over the next two years lack credibility as they are based on historical relationships and do not take into account either the unprecedented state of the housing market or the downside factors, including the probability of higher repossessions. A standstill in prices would reduce prospective economic growth by a total of 1.5 per cent. over the next two years, effectively stifling recovery. If house prices continue to fall, the bulk of any repossession losses would fall on the building societies as, in most cases, prospective losses are already at or above the insured proportion of 20 or 25 per cent. If house prices fall 12 per cent. further, losses to building societies might be between £2 billion and £2.5 billion—up to one-quarter of their combined capital resources—thus threatening the stability of the sector.
§ According to the Department of the Environment's own figures for the third quarter of 1991, which I understand were published only yesterday, the number of people made homeless because of mortgage arrears has risen by 47 per cent. over the same period last year. Moreover, as a percentage of those accepted by councils as being homeless, the overall figure is 13 per cent. which rises to 18 per cent. in non-metropolitan districts. In other words, almost one-fifth of homeless people in non-metropolitan districts have been made homeless through repossession orders.
§ We therefore have not only the problem of vast numbers of homeless families, adding to the already greatly overstretched resources of the poor local authorities—in Croydon, which I believe has the greatest number of court summonses at present, there 789 are some 60 cases a week of people facing eviction —but it is a threat to the whole structure of property values throughout the United Kingdom and all that that entails. That affects not only the capital resources of the borrower, but the insurance companies which underwrite mortgage indemnities and even some of the smaller building societies themselves. How long can some of them continue to bear the strain?
§ History nearly always repeats itself and I must remind the few Members of the House of my age who are here that a similar but not so dramatic or damaging fall in house prices occurred in 1951. I know only too well because I suffered in it. In 1949 I purchased a property for £3,600 with a small inheritance that I received when I came out of the Navy. The people from whom I bought it had lost £500 and were distraught at the time, but when I went to the Isle of Wight in 1953 and had to sell it I managed, after great difficulty, to obtain only £2,300 for it, which just paid off the mortgage. I had £100 left. I was lucky enough to buy a property without electricity on the Isle of Wight with the aid of a mortgage from the local authority on a 15-year term, fixed at 3.5 per cent. If only one could do that kind of thing today. I paid it right off.
§ I give that example to show that this state of affairs has existed before. As a building society valuer, I was hauled in front of the Halifax Building Society in 1954 because it wanted to know why we had valued some properties at about £3,000 in 1949 which we could not then sell. It took at least 10 years after 1951 for properties to regain their former values and then only slowly, until we started the gallop in the early 1970s. There was then a further fallback followed by another amazing push forward.
§ The trouble today is that the present situation does not compare with that which pertained previously because some 68 per cent. of houses in Britain are owner-occupied. We also have sky-high rents. Anyone who does not believe that such rents are demanded in the private sector need only read the columns any night in the Evening Standard. I should be surprised if you find a flat for less than £100 a week. It must be pretty dingy if it is less than that. Many of them cost much more. Seeing the Minister there, I must say that I pity the, poor building society valuer today. Where on earth does he pitch his valuations? If he is not careful, he will be had up for being over the top on some of his valuations; but, if he underdoes it, he will also be blamed. I also wonder how some of those valuers who will do the valuations for the proposed council tax will get on because there will be some difficulty in deciding the bands in which to place certain properties.
§ It will take years for the housing market to recover and, we hope, to regain stability. To achieve that, much must be done, not least by government. From the longer term point of view, they do not like advice. We have the recently published second report of the Duke of Edinburgh's inquiry; the report of the National Housing Forum, which I have the honour to chair, produced recently on social housing accommodation; papers by the Royal Institution of Chartered Surveyors on planning and land values; 790 many learned articles in magazines such as Roof, the official journal of Shelter which celebrated 25 years in existence only this week; and other housing publications, including a criticism of over-reliance on housing associations themselves by Mr. David Coleman which I hope will be studied in the Department of the Environment. In all those matters we should pay tribute to the Rowntree Foundation and to its director, Richard Best, because it is to that foundation that almost all those people turn to raise the necessary finance to conduct the investigations. The department is not therefore short of learned advice.
§ However, there is a desperate need for action now if a catastrophe—and I mean a catastrophe—is to be avoided. I hope that the Minister will not tell me that that is all the fault of Labour or even Liberal local housing authorities. I listen regularly to "Today in Parliament", and I happened to take note of a Question in the other place put by Mr. Matthew Carrington to the Prime Minister, suggesting that there were too many empty houses in the borough of Hammersmith and Fulham. I asked my researcher to ring up the housing department there and ask why there were so many empty houses. My researcher was told that the number of empty properties in the past 18 months has been reduced to about 450. That compares with the Tory administration in 1986 when the figure was 1,200. So there has been a great improvement since it changed hands. It was a rather silly Question to have asked. When 2.6 per cent. of council dwellings in the borough are empty, it is no worse if not better than the average for inner London. It is probably still not good enough, but certainly it is a move in the right direction and a great improvement on the past. I hope that we shall not have that as a satisfactory answer.
§ However, even if there were no empty council houses, if mortgagors continue to auction their repossessed home, they will destroy the very market on which other mortgages are secured and many more families will be on the streets. Moreover, selling those houses at greatly reduced prices does little or nothing to help the low wage earners, a few of whom may possibly be going to auction to seek to buy a cheaper house. As one who has attended many auctions in the past, I am prepared to wager that most of the buyers will be dealers who are looking for a bargain. Having bought the property, they will probably put it back immediately on the market with a £10,000 mark up and just await events. That is what will be going on. I am certain of it. The houses will not be sold to owner-occupiers. One firm claimed that 50 per cent. of the properties were going to owner-occupiers. I accept what the firm said, though I personally doubt the accuracy of that figure. However, it means that 50 per cent. are not so sold and it is not a helpful way to deal with the matter.
§ I recognise that in the past 12 months the present Government have taken some action. Money has been found to increase hostel accommodation, in particular in London, and also for privately leased accommodation in the city. Additional finance has been allowed to speed up and facilitate the repair and maintenance of existing council house stock. Also, the Housing 791 Corporation has been providing more money so that starts from housing associations are set to rise up to a total of some 40,000 by 1993.
§ Moreover, agreement has recently been reached with mortgage lenders to let repossessed properties for between one and three years to housing associations to be managed by them. I am not sure how far that has gone because I am told that housing associations are somewhat unhappy about the situation. So are the building societies because they do not believe that they are getting enough money for those properties. However, the housing associations are worried about what will happen about dilapidations and who will pay for them if the tenant misbehaves and leaves the house in pretty poor order.
§ I should also like to pay tribute to those local councils and housing authorities which seek to enter into joint schemes with mortgagors, although to date the schemes are very patchy and need to be officially encouraged both verbally and financially by Government. Others are looking for alternatives to bed and breakfast which, I am told, now costs something of the order of £5,500 per annum per family outside London. Some of them are going back to purchasing prefabs. That is a point to which I shall return in a moment. I happen to believe that if the worst comes to the worst that at least is one solution. Mobile homes are another solution.
§ Yesterday I was told that the provision of temporary accommodation for homeless people now costs something of the order of £300 million per annum and is still rising. I do not know whether that figure will be confirmed, but it was the one reported to me yesterday. It was reported in the weekend papers and confirmed by the Secretary of State for Social Services at the beginning of this week that discussions are taking place between the DSS and mortgage lenders whereby income support for owner-occupiers who qualify for it should go direct to the lender. From these Benches we shall certainly support that action if it can be pulled off. However, it means that the mortgagor must drop his action for possession.
§ A policy document published for the Liberal Democrats on 27th December shows what can be done in the way of converting mortgages to tenancies —it puts the issue another way round and not how it has been spoken about before—whereby the owner-occupier has a stake in the equity of up to 15 per cent. or enters a shared ownership scheme whereby the stake might be as high as 20 per cent. In other words, the person involved would revert from being an owner-occupier to being a tenant, provided that he had a reasonable stake in the property, or to having shared ownership where it would be a question of how much equity he owned. One would have to sort out just how much money was to be put in in the first place. But he would become part owner and part rent payer, which would at least cut his overheads. In the best interests of owner-occupiers in arrears and of mortgagors, we urge that such schemes should be adopted wherever possible.
§ I return to the Eagle Star's brief, in the second part of which it says that an increase in resources which 792 lenders devote to counselling ought to be provided too. There is a lot to be said for that and trying to get in before it is too late. The aim should be to provide a more positive approach to ensure that direct contact is made with borrowers in all cases of incipient difficulty. Coupled with measures that ensure that social security benefits for mortgage interest are received directly by the lenders, a redoubling of efforts of counselling should help to secure a much greater proportion of available resources for servicing mortgages, thus diminishing the arrears problem. I should expect the citizens advice bureaux to play a part in that but they are always short of money.
§ There could be a development of a short-term rental scheme, which was recently advocated by the Department of the Environment. In its present form, lenders could not justify participating in the rentals likely to be achieved, but the scheme could be viable if higher rents were available. It rather looks as though, from the insurers' point of view, that scheme, however admirable, may not get off the ground because there will not be a big enough return on their money. They also mention the joint ownership scheme, which they very much support.
§ They say that it is very unlikely that any of those three schemes would be viable without government participation with a measure of financial support, alongside lenders, indemnity insurers and housing associations. A co-operative effort would have the prospect of alleviating significantly the current deep malaise in the housing market by reducing downward pressure on prices. It could make a positive contribution towards dealing with the growing problems of homelessness while benefiting the growth of the economy.
§ The Institute of Fiscal Studies has estimated that such schemes would help over 300,000 homebuyers at a possible cost of something like £400 million. Given the means tested character of the schemes, it would by definition bring help to homebuyers likely to be facing difficulties with their mortgage. The schemes would also virtually end the employment trap which increasingly faces unemployed home buyers. A family with two children paying a £70 a week mortgage needs to secure a job paying more than £220 a week if it is to be better off than remaining on income support. By removing an unemployment trap and enabling unemployed home buyers to take up low paid work, the mortgage benefit scheme (which it would develop into) would also lead to future savings in net public expenditure.
§ There is a strange situation in which people who were perhaps in work and lose their job then get another job which does not pay so well but still do not receive any housing benefit. A case was quoted in last Sunday's Observer in which a family was due to be evicted despite a probable realisation to them of £30,000 from the property; in other words, they had a substantial stake in the property if only they could sell the house. The fact is that the owner lost his job, took another job at a lower rate of pay, but found that he could not meet the mortgage payments. The family is 793 therefore to be evicted. However, if some sort of mortgage rescue scheme could be introduced, such people would be saved.
§ As I understand it, it seems totally unfair that income support is only available where the householders—both of them—are wholly unemployed; where either the husband or the wife or one of the partners to a joint mortgage retains a job, no assistance is given. So if someone goes and gets another job, he probably pays for it by losing his house, whereas if he had stayed unemployed he might well be helped by the Government to remain in possession.
§ No doubt many parents will want to help their children if they are in difficulties with their mortgage. But in so doing if they try to mortgage their own property, they may well put their own future in jeopardy. Some of the tales of earlier sale and leaseback schemes are correct. Some people did it to give themselves annuities and such but now they wish they had not done so.
§ Despite all the gloom, there is a chance in political circles to achieve across the party divide some accord on future housing policy. Mr. Clive Soley, who speaks for Labour in the other place on housing matters, has stated that he is quite willing to see a rise in private sector renting of up to 15 per cent. That should at least reassure building societies, insurance companies and private landlords that they will not immediately be clobbered should they enter into a tenancy arrangement. That is a new development. I have sat through enough meetings of Builder magazine in the other place where people like the late Mr. Eric Heffer and others would have nothing to do with that development. The Labour Party is now saying, "Private landlords are free to continue letting. We will not clobber you". If we are to build a sector with about 30 per cent. of rented accommodation—as I believe we should; we are far too dependent on owner occupation—such bodies must be encouraged to build, or buy and lease existing stock. I am all in favour of local authorities being allowed to buy existing stock. I am sure that builders who have houses standing empty would love them to do so. That was a previous solution. However, the Government have this terrible concept: they do not believe that councils have anything to do with housing. The Government give them the responsibility of dealing with homelessness but provide no bricks and mortar with which to do so. The houses are flogged off to housing associations. The Government take the money and spend it on skating rinks and so on, as has happened. An appalling situation has developed.
§ I wish to see private landlords back on the scene. I want to see insurance companies letting property. Building societies went into the estate agency profession. They should not have done so but they did. Some are still in it. Why should not the Halifax let houses? It has the offices. Nationwide has done so, as did the Abbey National. They do not want to fiddle about colleting rents. One of my jobs in earlier days was to collect rent. Estate agency firms of the old tradition always had two or three strings to their bow. They did not just sell houses; they managed housing. 794 They collected rents. They probably had an agricultural side to their business, so that when things were bad in one sector there was some business in the other sector. Building societies came in, paid vast sums for the businesses and got rid of all those side-lines. Building societies thought that they would make money by providing mortgages, life insurance and endowment policies and so on. I suggest that private landlords get back into the act.
§ When I first came to the House I had a flat that was owned by Legal & General. It was well looked after. Unfortunately after three or four years they sold the block. We should encourage such bodies to get back in. It cannot all be left to housing associations which are in danger in some cases of becoming more bureaucratic than the local authorities. There are instances where it costs more in public money to build houses through housing associations than it ever did through local authorities. That is a fact. While I am a great believer of the housing association movement and a founder member of one myself, some are becoming so big that we need third and fourth parties in the rented sector.
§ We should also put on the back burner proposals to remove houseboat moorings. We should see whether we can improve the facilities of the people living in houseboats. We shall debate soon a Bill from the British Waterways Board which wishes to shift people from their moorings. Such moorings may be a little insanitary, but let us keep them and improve the sanitation conditions.
§ We shall soon have legislation regarding squatters, in particular those who take over shops without anyone's permission. There are circumstances where I believe such action is not only understandable but can be condoned. My son would never have obtained a house unless he had squatted in it first. He was given the tenancy of it by a short life housing association.
§ We need a national land agency rapidly to acquire, to parcel together and sell or lease land for development. The former Land Commission could do that but it has been wiped out. I did not believe in the betterment levy, but there was a great potential for a regional trader in land. We provide for such bodies in Wales and Scotland. I have the annual report of the land authority in Wales. It made a great profit and does a good job. My Conservative colleagues in the Royal Institute of Chartered Surveyors who condemned the Land Commission now wish to see that body retained. They realise that it has done a great job. Let us do the same in England.
§ We should also consider mobile homes. As I said earlier, as well managed, decently laid out estates in urban areas, they can provide cheaper alternatives to bed and breakfast accommodation for the homeless. Mobile homes would also give such people some seclusion and self respect. The Salvation Army—God bless it; I have enormous admiration for it—which looks after so many people who are down and out in this country, asked Surrey University to investigate whether it was doing the right thing in providing hostels for such people. Was there some way that it could better spend its money, because it lost money by so doing? The report from Surrey University indicated 795 that people who were homeless and in bed and breakfast hostels wanted their own front door and a little stature back in their lives. They did not want to share such facilities as loos, washing up areas and so on. One can provide that stature with a mobile home.
§ I have been on this hobby horse for some time. If the Minister for Housing cannot squeeze the money out of the Treasury, let us put forward such schemes as providing mobile homes. We make rather good mobile homes in Humberside. I made that statement to the director of housing in Hull. He said that he would love to carry out such a scheme but he is restricted by the present controls on local government spending. We have a lot of land lying idle where we can put in essential services. The area could be properly managed, and decently set up with hard standings. We could ensure that it is well run. That is one way to handle the situation.
§ I believe that we are in a war time crisis situation. It is the fact—the number of noble Lords wishing to take part in the debate reflects it—that housing does not appear to be a main issue. It is not in the top 10. I do not understand why. It is a situation that affects people's children and grandchildren., However, I shall place a bet that within three to four months it will be the one enormous issue of the coming year if we continue in the way that we are now. It is therefore up to the Government to do rather more than at present. I am sure that the Minister for Housing would like to do more. I wish to encourage him to do so. I hope that the noble Baroness will tell him of this debate and perhaps he will read it. If the Government do not do more, we are heading for an absolute catastrophe. My Lords, I beg to move for Papers.
§ 6.47 p.m.
Lord Campbell of Croy
My Lords, I am grateful to the noble Lord, Lord Ross of Newport, as I am sure are other noble Lords, for raising a subject which has been of great concern in recent months and a cause of personal distress in unfortunate cases. Practical suggestions must be welcome on how to alleviate the plight of home owners who have not been able to keep up their mortgage payments. I hope that the anomalies in benefit payments to which the noble Lord referred can be looked into by the Government and ironed out.
I must again declare to the House an interest as a director of one of the largest building societies and chairman of its Scottish board. We own a bank that has also been engaged in mortgage lending.
Until about four years ago, the figures and published information on arrears and possessions indicated that in the majority of cases the main reason was matrimonial or other family breakups. With the recession that has changed. Family splits are still a factor. However, the slump in the housing market has given rise to problems that cannot be solved by selling the property. Nowadays the proceeds of a sale are likely to be less than the outstanding debt.
The figures for properties taken into possession showed a considerable increase both last year and to date this year. The noble Lord, Lord Ross, gave some 796 figures. There has also been an increase in the figures for cases of arrears of six months or more. I wish to say a word of caution in interpreting those figures. Building societies and no doubt other lenders have been doing everything they can to help home owners in arrears, including extending the time and reducing the instalments. That adds to the arrears figures. That may be misleading because one hopes that in most of those cases the individuals being helped will pull through and will not have to give up their dwelling.
In this context borrowers are well advised to get in touch with their lenders as soon as they find themselves in difficulties. Conditions for their payments can then be altered by agreement. Because of the fall in house prices, especially in the south of England, some borrowers have voluntarily left their houses and handed in the keys. The lender is then in possession without asking to be. That situation is made worse if those borrowers later apply for a mortgage on another property with another lender while concealing their default on the previous loan. That has been happening. Therefore, collective action has been taken by mortgage lenders to forestall such compounding of trouble by opening a register of possessions, enabling them to share the particular information needed.
The Council of Mortgage Lenders—the CML— represents most of the building societies, banks and other financial institutions engaged in domestic housing finance. In May of last year the council published a statement of current best practice on handling mortgage arrears. In August of this year a similar statement was issued on possession procedures. Of course the aim is to help borrowers and to have a standard code of good conduct in those difficult circumstances.
However, it should be remembered that the building societies have obligations. They have obligations to their members whose invested money is involved. They must also observe the prudential requirements of the Building Societies Commission which is the regulator in their case. In passing, I point out that the collapse in the United States of the whole savings and loans system is something which we should avoid. Fortunately, through our regulators we have kept well clear of anything like that.
I understand that discussions have been taking place between the mortgage lenders and the Government. One improvement being advanced by the CML concerns those social security payments—income support—directly related to mortgage aid. Those are payable in certain circumstances, such as loss of employment. At present they are paid to individuals. In many cases the money does not find its way to meeting the mortgage interest as is intended. If those payments could be paid direct to the lender, the eventual taking into possession of a house would be less likely. After all, that is the present practice as regards tenancies and rent. Where the rent is being met specifically by social security payments or a housing department, it can be paid direct to the owner due to receive it. That is certainly the case under current Scottish arrangements. I hope that the Government 797 will agree to make the necessary changes to put that reform into effect for income support payments made solely to meet mortgage interest.
Lessons from the past may help us in the future. Questions should rightly be asked. Should those problems have been anticipated and avoided? Did mortgage lenders make it too easy to obtain loans? Should the possibilities of recession and a fall in house prices have been taken into account in the 1980s and earlier? With hindsight the answer to those three questions is probably, yes. However, we must recall that home ownership had become an aspiration for many families in the country, supported in recent years by all political parties. Many young married couples were working hard and saving with that as their principal goal. Building societies and other lenders wanted to help as much as they could. In the past two or three years lenders have felt obliged to alter their criteria; for example, the income ratio. Also, they have reduced the percentage of the valuation of a property to be covered by a loan.
Our special anxiety must remain with home owners who took out mortgages prior to those past two or three years, feeling confident that their prospective income would meet the monthly payments, and who have been unable to do so for reasons beyond their control. They should have been informed about the system of unpredictable changes in interest rates. That should have been explained to them at the time they arranged their mortgages. They have had to contend with unusually high rates in recent years.
If they have encountered serious illness, loss of a job or there is some other reason for a fall in their income, they may well be in a serious predicament. In this debate I submit that our attention and anxiety must be focused on people with those problems. I hope that the Government will continue to work with the Council of Mortgage Lenders to find ways of easing the personal burdens and worries of those borrowers.
I have mentioned already income support payments I shall be interested to hear from the Minister whether there are any other schemes in which the Government are involved.
Turning from people to property, I understand that there is a new scheme which was touched upon by the noble Lord, Lord Ross, for dealing with property already taken into possession. I understand that that has been agreed between the Council of Mortgage Lenders and the Department of the Environment and that mortgage lenders will enter into management agreements or leasing arrangements with housing associations. The housing associations will manage a property for a period of not less than a year. The property will be returned with guaranteed vacant possession either on a fixed date or after six months' notice.
One advantage of that scheme is that it uses existing institutions and procedures—management agreements—which are already well established. Another advantage is that a new source of supply of housing for homeless families will become available which will be much cheaper than the bed and breakfast accommodation now being used.
798 Also, it would mean that additional properties—that is, the houses which have been repossessed—would not be coming onto the market for sale at a time of glut which we know exists at present and which may continue for some time, as the noble Lord, Lord Ross, rather pessimistically foresaw. If that scheme goes ahead, it will help to provide more housing through housing associations.
Noble Lords who were in another place with me some 30 years ago will recall that I was one of the Ministers who put through the Housing Act 1964. Therefore, in 1963 and 1964, throughout a long Committee stage, I was involved with the Bill which created the Housing Corporation. That gave the first official boost to the housing association movement and started the spread and growth of housing associations. I heard the slight reflection which the noble Lord, Lord Ross, made about the use of housing associations now because they are doing so much. However, he took the same view as I have that they have done a very good job. I still believe that for appropriate purposes housing associations can be very useful and I hope that they will help even more in the difficulties which now face us.
The agreement which I have heard about is between the Department of the Environment and the CML. The DoE has functions in England but not in Scotland or Wales. If a scheme is in being, I ask the Minister whether similar arrangements are being made for Scotland and Wales and how the scheme is proceeding. What is the latest news?
The Motion refers to other ways of dealing with mortgage debt. I do not believe that any new method is likely to be a panacea, but I believe that all practical suggestions for improving the position will be welcome. I hope that the Government will continue to consult representatives of all the private and public bodies concerned with the object of ameliorating the present situation and as far as possible reducing the amount of debt in the future.
§ 7 p.m.
§ Earl Russell
My Lords, I may surprise the House by declaring an interest. I hasten to reassure the Minister that I am not about to have my house repossessed. But I do have a house which, as the children grow up, I had expected to be likely to sell in the next few years. I live in the area of Willesden magistrates' court which has had one of the largest levels of mortgage repossession cases in the country. I quote from memory and do not have the figures to hand, but I believe that there were 620 repossessions in the first six months of this year. That shows how ramified the effects of the problem of mortgage repossession are.
One would expect the problem to be on quite a considerable scale; between 1988 and 1990 many people are likely to have had mortgage repayments increasing by something of the order of 50 per cent. I often profit from listening to my noble friends. I have never profited quite so literally as I did from listening to my noble friends Lady Seear and Lord Ezra speaking on the Finance Bill of 1988, for what I did at that time was take out a fixed rate mortgage. I dread 799 to think how much money I might have had to pay had I not. In dreading to think of that, obviously I must have feeling for those who did not have the privilege of hearing my noble friends on that occasion and did not take the same precaution.
The effects of repossession are manifold and mainly hard. The hardship for those who lose their home is too self-evident for me to need to dwell upon. The cost to the Government is also considerable. My noble friend Lord Ross of Newport quoted figures for the cost of bed and breakfast. Those are the figures for outside London. The London cost is a great deal higher. Were those in bed and breakfast ever to obtain a boarder's premium for eating, the cost would be higher yet. Until we obtain that, the numerous cases of malnutrition in bed and breakfast will continue to occur.
There is also a considerable loss to the lender whose interests must be taken into account and served. Forced sales cannot be in the lender's financial interest. If the lender is out of pocket he will not be able to lend to as many people in the future. It is a handicap to the mobility of labour. Many people cannot move jobs simply because they cannot sell. That has a depressing effect on the market. Repossessions and forced sales hold down prices, and that in turn, as my own case illustrates, discourages people from putting their houses on the market and so preserves rigidity.
All that will be exacerbated from April 1992 when a change comes into effect in the definition of part-time work. From that date onwards people working up to 16 hours instead of 24 are to be classified as part-time. I hope to draw the attention of the House to the effects of that change at greater lengths on a future occasion. For our immediate purposes it means that those concerned, if they work over 16 hours, will cease to be eligible for income support. Income support is available for mortgages; family credit and housing benefit are not. Therefore the likeliest effect of those changes will be to make people either suffer further repossessions or give up their part-time jobs in order to continue to receive income support and not suffer a repossession. I cannot see how that can be in the public interest.
It is much easier to say that something is wrong than to say what should be done. It is not enough to go round saying, "This is dreadful. This is awful". One must try to come forward with constructive proposals. Those proposals must be in everybody's interest. I entirely accept what was said by the noble Lord, Lord Campbell of Croy, that considerable numbers of lenders are making great efforts to be helpful, and that is appreciated. But there is a limit to the legitimate extent to which one can ask a private profit-making company to behave in a non-commercial manner. There is a point beyond which even the most helpful of building societies should not be asked to go. They have a legitimate interest in making a profit, and if they do not the rest of us will be the worse off for it.
Therefore somebody must pay. The proposal that income support should go to the lender—the part destined for mortgage—is supported by my noble 800 friend Lord Ross of Newport, the noble Lord, Lord Campbell of Croy, and myself. That is a start. What is a practical way of looking at the issue? One may remember the old repayment mortgage which is now going out of fashion. One paid off a little of the debt month by month. Simply stand that on its head. The monthly repayments are reduced and then the occupier sells back to the lender a little bit of the equity each month. That seems to me to be perfectly practical.
First, it gives a breathing space during which the occupier may perhaps find employment. In the form of the equity, for those who have it, there is a financial cake which can be drawn upon for just that sort of occasion. Neither the occupier nor the lender needs to be out of pocket as a result. The advantage to the occupier is clear. He gains the right to keep his home. The advantage to the state must be clear; it saves costs in bed and breakfast which are considerable. To the lender I hope there is also a gain; he gains an equity in the house.
In the worst case, following on from that, the lender will find himself the full owner of the house and will have acquired the full equity plus a rent-paying tenant. I understand that that is not what the building society intends. But from their point of view it is a question of considering alternatives. Equally, they gain the equity of the house if they have a forced repossession using a bailiff. I should have thought that a voluntary repossession with a tenant selling the equity is slightly less uncomfortable to the lender than a forced repossession using bailiffs. At least it is worth considering whether that might be the case, though I accept that neither is what the lender is looking for.
There is also a best case in which the occupier finds work, receives a decent income and little by little starts buying back the equity from the lender. The whole course then goes into reverse. In that situation everybody benefits. For once in a blue moon everybody is happy. I know that will not solve everything; but it will solve some proportion of cases. I do not have the figures to calculate how many, but if we can solve one little part of the problem is that not a start?
§ 7.8 p.m.
§ Lord Thomson of Monifieth
My Lords, like the noble Lord, Lord Campbell of Croy, I begin with a declaration of interest as a director over many years of a major building society. My noble friend Lord Ross performed a useful and topical service by raising the debate this evening and giving us the benefit of his immense professional experience in this field. Everybody who has spoken has agreed that the number of repossessions now taking place is serious, and indeed is growing on a scale never before known in modern housing history.
The significant figures in my mind are that in 1979 there were 2,500 forced repossessions. This year a conservative estimate is 75,000. At one level it means that with mounting arrears there is a pool of human misery in which the proud hopes of home ownership of certainly over 100,000 families and perhaps more are being drowned. At another level, as has been said 801 in the debate, it puts a strain on the financial strength of the building societies which are the principal repository of personal savings in this country. At this very moment the Woolwich Building Society with which I am associated has been forced to come to the rescue of the Town & Country Building Society because of the impact on that society of its provision for repossession.
At a third and even more fundamental level, and a matter which is bound to be of great concern to Government, is the crisis in the owner-occupation market which is having a serious effect on the speed of the c3untry's emergence from the present recession. Confidence has so much to do with bringing about recovery, but the collapse of the housing market is having a disastrous effect on consumer confidence generally, as we can see from the latest retail figures. I do not believe that anyone should underestimate the difficulty that there will be in restoring confidence to the housing market in the year or two that lie ahead. It underlines the importance of a number of the practical proposals that my noble friend Lord Ross put forward for dealing with homelessness generally.
In that regard the Government have a very great deal of responsibility; any government have such a responsibility concerning housing policy. According to the Financial Times of recent date the number of homes for all social housing, including housing associations, has slumped from 126,000 in 1978 to 35,000 for the current year, 1991–92. Therefore underlying the present crisis in the mortgage market is this basic national shortage of homes and the growing problem of homelessness.
The Government's main positive housing policy, important, welcome and beneficial for the country as a whole—the spread of home ownership—has turned very seriously to ashes in the present circumstances. It is adding to the scale of homelessness. The then Chancellor of the Exchequer, Nigel Lawson, has a heavy responsibility in that regard. His 1988 Budget abolishing double taxation relief on mortgages, but giving buyers a three-months' or three-and-a half-month's standstill period, encouraged large number; of young couples either married or unmarried or even two friends in an office, to rush into mortgages that they could not really afford, at relatively low interest rates. That advantage tragically proved very temporary indeed.
On this matter—the noble Lord, Lord Campbell of Croy, also made the same point—the lenders, including the building societies, must take their share of responsibility. In the much more competitive financial market place that has been created over recent years, they were tempted to try to maintain market share with loans representing too high a percentage of the purchase price, or too high a multiple of income. There the lenders have learnt their own lesson. They have been tightening their lending criteria and monitoring the quality of business that comes from intermediaries. As the noble Lord, Lord Campbell said, they have recently established a central mortgage possessions register which helps to deal with those who have already defaulted on loans.
802 It is quite clear that these measures do nothing to help people with loans which are already in arrears and still less those who have had their homes repossessed. The fact that the number of people who are six months or more in arrears is some six times the number of repossessions is, I hope, some evidence that the lenders already do what they can to help people stay in their homes. Lenders vary in their market behaviour. It is probably true that the old-fashioned building societies are less prone to resort to repossession than some of the new breed of centralised lenders.
In practice, building societies, as my noble friend Lord Russell said, do a great deal to help people to stay in their homes. They encourage people to seek advice at an early stage; they re-schedule debt and so on. A number give grants to the citizens advice bureaux and similar outside counselling bodies. It is fair to say that they do that partly because they are mutual in structure with members to serve rather than shareholders to provide with dividends. But that ethos is greatly reinforced by the very sound and more important reason that it is in their own economic interests to do so.
But what building societies and other lenders can do in their own self-interest within present structures is plainly not enough. The question is what can others and the Government do in giving a lead to mitigating what is a tragedy for so many. We welcome the fact that interest rates have come down over recent months, but the way in which that has been done by the salami tactics of half a per cent. at a time has certainly not helped to restore confidence. One of the most remarkable features of the economy in 1991 has been the failure of mortgage credit to respond to lower interest rates.
We welcome what we hope are signs that the Government are ready to take steps to ensure that the substantial sums that they give to meet the interest charges of those who are unemployed are used exactly for that purpose. For my part, I am not quite clear what stage the Government have reached in the matter. I hope that when the Minister replies she will respond to the questions that have come from all who have spoken in the debate asking for clarity of the Government's intention in that regard.
The Council of Mortgage Lenders estimates that perhaps half of what the Government provide may be used by claimants to meet other household needs. That results in an increase in the number of repossessions. That help goes only to the unemployed who are already on income support. Something more is needed to prevent those in arrears through a drop in household income for one reason or another in the present recession, becoming themselves repossession victims.
A number of suggestions have emerged from the debate concerning various mortgage rescue schemes. I know that the Council of Mortgage Lenders has drawn on its experience to produce proposals which it believes are practical. It has been discussing them with the Government. It is also fair to say that the council and others have been handicapped by the refusal so far of the Government to consider any kind of 803 financial underpinning. Surely there is so much common interest among everyone concerned about this matter including the Government, the lenders, the insurance societies, the housing associations and the local authorities, that the Government should be ready to give a lead in this area to bring together the various interests and to back the initiative with some financial support.
The building societies themselves should be ready to share their part in the cost of that financial underpinning. If the repossessions increase next year—there is every sign that they are going to as my noble friend Lord Ross made starkly clear in the figures he gave—then the lenders will pay an increasingly higher price in the sterile solution of more and more repossessed houses that no one really wants to buy, with a further loss of confidence that that will bring about. From the point of view of the lenders, including the building societies, the cost of accepting a zero rate of interest on an equity share or the cost of a rental income lower than repayments, might well be worth considering against the cost of repossession and the loss that goes with it.
Therefore, I hope that the Government will take an initiative in bringing all the interested parties together and show themselves ready to take their share in financially helping to bring about a practical rescue scheme. At the very least it is certainly worth a much more sympathetic investigation by the Government than the matter has so far received.
However, I must add to what has already been said by the noble Lord, Lord Campbell of Croy, in relation to building societies. It is important for us all to remember (my noble friend Lord Russell made the same point) that building societies have responsibilities to savers as well as to borrowers. It is sometimes forgotten in the excitement in the press about these very serious human problems that the savers outnumber borrowers by about six to one. Building societies are the major national savings bank. A solution to repossessions must therefore be sought without undermining the prudential requirements of the building societies and the Building Societies Commission. My view was certainly reinforced by the rather frightening figures that my noble friend Lord Ross gave of the financial impact on building society finances of this situation, and of the possible trends in the future.
The building societies commissioner, Rosalind Gilmour, has had her critics for the rigour with which she has interpreted her prudential responsibilities recently. However, I am bound to say that when one thinks—as the noble Lord, Lord Campbell, mentioned—of what happened with the savings and loans in the United States, we should all be glad that in the present state of the financial world small savers should be safeguarded by having a regulator of her firmness.
In conclusion, I do hope that everyone
§ Lord Elton
My Lords, I apologise for intervening in a debate for which I do not have my name down and I cannot remain until the end. However, I should like one point cleared up.
804 Both the noble Lords who have just spoken, even when recognising the prudential requirements of the building societies and recognising that they are made up of savers, seem to have forgotten that if there is some moral obligation met by what results in a reduction of interest rates for the savers, the savers will go away. The Building societies will cease to exist. Building societies are collections of people who have deposited money to get interest. If that interest rate falls below that of bank deposit rate, then the savers will simply go elsewhere. So how does one meet the moral obligation which the noble Lord quite sensibly points out?
§ Lord Thomson of Monifieth
My Lords, the interest rates that the building societies offer to savers are bound to be the interest rates of the market place, and they are bound to react to whatever developments there are within the market place. I do not see how it invalidates the argument which I am seeking to put forward. But perhaps I have not properly understood.
§ Lord Elton
My Lords, the building societies have only the money to pay back that they get from the borrowers. Therefore, if a house is repossessed, that flow stops and the rest has to be spread more thinly. If one starts to pay money back, one has a negative flow and the interest rate becomes further reduced. I, as a depositor in a building society, can then see that I can get a higher rate elsewhere and I take my money away. Then there is nobody left to fund the remaining spirit in the housing market. The fuel for buying houses is taken away, and the capital value of the housing stock diminishes further. We get into an accelerating downward spiral. I should not take up the time of the House. I apologise, my Lords.
§ Lord Thomson of Monifieth
Not at all. It is a very pertinent and legitimate question to ask me. It is that question that makes building societies very cautious and indeed sometimes seem rather reluctant to those who are seeking to put forward their particular forms of mortgage rescue schemes. That is why I am confining myself at this stage to saying that the Government should take the lead in investigating these matters and should try to find out where the balance of both advantage and prudence lies. I do not suggest for a moment that these matters are easy.
My Lords, I was going to conclude by saying that I hope that at the end of the day everyone concerned —government, lenders and others—will learn some important lessons from the present situation. Once we have emerged from it—and I trust that may not be too far ahead—I hope that the owner-occupation market will never be encouraged again by anybody, either government or lenders, to return to the frantic false boom of the 1980s, with yuppies climbing the housing ladder in the belief that they would make more in capital gains by going up the ladder than they were by earning in their salaries.
The terrible fact is that the lower rungs of the housing ladder have been destroyed, and as a consequence hardly anyone is climbing it. It would be a much healthier society if we were able to return to a situation where buying a house was regarded as a 805 long-term investment in a stable family home rather than simply a counter in some kind of inflationary speculation.
§ 7.25 p.m.
§ Lord Dean of Beswick
My Lords, I join other noble Lords in expressing my appreciation to the noble Lord, Lord Ross, in his somewhat lengthy but very detailed speech on this very important subject. He gave us some statistics, which I shall not repeat; but we have to go a little deeper into some other statistics to understand the enormousness of the problem.
I happened to be in the Gallery in another place three weeks ago—I think it was on a Thursday afternoon—when the Leader of the noble Lord's party asked the Prime Minister a question. I have taken a note of the figures that the Leader of the Liberal Democrat Party produced on this subject and which have been echoed by other people since. He said that in 1979 2,500 houses were repossessed; in 1989, 16,000 were repossessed; in 1991 it is calculated that it will be 110,000, although I have seen upwards of that figure since. Those figures were calculated by independent people—not by people ensconced in the research departments of political offices, but from sources such as the magazine Inside Housing, which is produced by the Institute of Housing, and by organisations like Shelter. There is therefore no question but that the situation is enormous. In fact, the noble Lord, Lord Ross, quoted a figure for 1992 of 250,000. That scared me to death. That sort of figure beggars belief. We are only two years away from that situation.
We can go into great detail on the causes; but basically one of the main causes was a false valuation system that was produced by the building societies and banks in competition which were queuing up to shovel money out, and where houses were being bought far in excess of the value. I can remember when I bought my first modest bungalow that it took me all my time to get a 90 per cent. mortgage on a new property. I had to go and squeeze the building society in order to borrow that money. They told me that they expected me to find another 5 per cent. to make it 95 per cent., which I could not.
The young people today are not faced with that situation. It is, "live for today and don't be too worried about tomorrow". They were encouraged in this by the building societies and the banks. The Government also played a large part in what happened. The noble Lord, Lord Thomson, covered that very well when he talked about the activities of Mr. Lawson when he was Chancellor.
People have asked: what can we do to get things started again? I think the greatest thing in this tragedy is the fact that these people whose houses have been repossessed will no longer be able to enter the owner-occupier market. I believe that for some of them it has gone for ever. That is an awful situation.
I quoted some figures some weeks ago. I had to assure the Minister who was on the opposite Bench at that time that I was not against the sale of council houses as such, although my personal instincts have always been that the best people to decide whether council houses should be sold is the local authority 806 where they are situated. I quoted figures which I was trying to base on some equal and fair approach between the owner-occupier in all sectors of the community. I produced figures which showed that a person purchasing a council house now with a major discount can be receiving the equivalent of £100 a week if they had bought it on the market. At the same time, homes could be saved from repossession by paying much less. I have the copy of a document which has just been issued by the Department of the Environment which shows that the Government now have a new scheme. This document is dated 4th December. It states:Tenants of local authorities in London and the South East will be helped to buy properties in the private sector with the help of a grant averaging over £17,500 per family".Why has the department suddenly produced this money for people to enter the housing market when it has allowed existing owner-occupiers whose houses could have been saved for a fraction of that cost to go to the wall'? The department has another scheme which allows for the purchase of some of these properties by public bodies which will then let them to people who have been dispossessed from them. The whole thing seems mad to me.
The main problem is the lack of houses to let. That started way back in 1979 when Mr. Heseltine was Secretary of State for the Environment. He inflicted cuts on the house building programme in the public sector. It is calculated by people involved in housing —not the politicians—that had the money allocated to housing not been cut, another 500,000 houses would now be available in the public sector for letting. That opportunity is gone forever, which I think is pretty sad.
The report commissioned by the Duke of Edinburgh, which was referred to by the noble Lord, Lord Ross, and the reports commissioned by the former Archbishop of Canterbury, entitled, Faith in the City, and its successor, all say that if we want to get our housing in order, there will have to be a substantial increase in the number of properties to let at the bottom end of the market. Strictly speaking, that point is not related to the Motion of the noble Lord, Lord Ross, but it is relevant. When asked why they have stopped local authorities building houses for people to rent, Ministers in another place from the Secretary of State downwards and the Minister in this House say that the Government, as a deliberate act of policy, no longer see the role of local authorities as builders of houses. The Government do not want to encourage local authorities. They believe that their place will be taken by the voluntary sector.
I have questioned the Minister on this subject on a number of occasions. The last time that I raised the issue the Minister's colleague, the noble Viscount. Lord Astor, answered at the Dispatch Box. He said that by 1992 the voluntary housing associations will have reached an annual target of providing 48,000 units of housing for letting. The Department of the Environment itself calculates that, to have any impact at all on the present situation, a minimum of' 100,000 houses a year will be needed until the turn of the century. That calculation dates back to 1990, so we are 807 already behind. Even with the greatest ambition, the voluntary housing sector will never be able to keep pace with the demands that will be made upon it.
Many people have asked what has caused the increase in number of repossessions. Shelter has published an excellent document which sets out five outstanding reasons. The first is that mortgage costs have increased beyond affordable levels. That point has been well covered by previous speakers. The second factor is unemployment for one or all adult members of the household. The third factor is reduced incomes through loss of regular bonuses and overtime. A further factor is forced moves to less well paid work. At the bottom of the list—I assume that the reasons are in order of priority—is relationship breakdown. That used to be mainly at the top of the list because the other factors were not so serious. That is the situation we face at present.
I wonder what the Government have in mind when they talk about dealing with housing problems. Although they were warned by non-political and independent-minded people over a period of four or five years that they were heading in the wrong direction, they still blundered on. The noble Lord, Lord Ross, referred to the cost of bed and breakfast accommodation and gave a national average figure of £5,500 a year. Another speaker—it may have been the noble Earl, Lord Russell—referred to the London figure, which is upwards of £8,000 a year. That is an appalling state of affairs when at the same time some people are having their homes repossessed. If one can stand in the corridors of your Lordships' House and feel the onset of winter, what must it be like for the homeless?
The number of registered homeless may well in future be exceeded by the number who are not registered. There has been a dramatic increase in the number of people sleeping rough. Some time ago I drew attention in the House to an independent report which stated that if present developments continued, there would soon be 30,000 people sleeping rough in the centre of London. It was christened the New York dimension. It is becoming worse. On my way to the House I used to walk along the Strand. I saw the first signs of people living in boxes. The problem has since grown and one can now see them up to the top of Tottenham Court Road. Noble Lords may think that I am wandering from the subject of the Motion but I think that these points are related. Where do the people who voluntarily walk out of their homes go? Families being what they are, they will not always be welcomed back to them with open arms.
Another factor has compounded the problem. Your Lordships' House and another place were persuaded to put on the statute book a mandatory right for tenants to purchase their council houses. The then Secretary of State for the Environment, who is now the noble Lord, Lord Jenkin of Roding, gave a guarantee that all the capital raised by those sales could be used by local authorities to build houses. At the time there was even an argument about that because it was calculated that three houses would have to be sold in order for a local authority to be able to 808 build a new one. That was not a happy prospect. But it was not enough. The Government then decided—I believe it was the Chancellor of the Exchequer of the day, Mr. Lawson, who decided—that if that money was pumped into society to provide houses for people, his budget would be out of balance. Therefore the undertaking was outrageously reneged on. I know the Minister will say that in some areas local authorities have not sold many houses. Nevertheless, that does not destroy the argument that where a local authority has raised substantial sums of money by the sale of council houses, that money should be made available to it. Local authorities in rural areas were initially in favour of selling their council house stock. Such authorities now face a serious problem. They are finding that they have no houses to accommodate those who have had their homes repossessed.
The Government's policies are contradictory. They are a mishmash. There is an article on page 19 of today's Daily Telegraph. With your Lordships' permission I shall quote from the article which has the heading, "If you want to hang on to your house, don't bother about a job". It reads:It would be hard to find any couple more proud of their home than Michael and Kathleen Kinsella. Since they bought their three-bedroom terraced house from Barnet council seven years ago they have poured their hearts into it, adding a porch with Grecian pillars, a Tudor-style front door flanked by stone lions, and a chandelier in the double-glazed lounge. `Our little gem,' Michael calls it.Imagine their anguish, then, when two years ago Michael, at the age of 55, was made redundant from his job with a shopfitting firm and they faced the possibility of losing it all.On the Grahame Park estate in north-west London they have seen often enough what redundancy can mean. Tenants who are unemployed or in low paid jobs are protected by housing benefits which cover the rent. But those who exercise the much-vaunted Right-to-Buy, as the Kinsellas did eight years ago, get less state protection and can quickly land in difficulties. This is the flip-side of the property-owning democracy and there is growing criticism that it is unbalanced and unfair".I believe that I have repeated some of the figures in this House in the past regarding the enormous benefits and huge discounts offered to a person wishing to buy a council house as against what is taking place. Now, once again, it is only in the South-East that the Government propose to introduce the new scheme to which I referred whereby any one who wishes to move from their council house can receive a handout of £18,500 to use as a down payment to buy a new home. Of course, it is possible that they have some electoral worries in that area. From the information that is coming through, I would not be surprised if that was the case.
However, as a person who spent his life in the North of England, I resent the fact that, once again, there is no such scheme for the big cities in the North —for example, Manchester, Leeds, Liverpool and the Scottish cities—which have just the same problems as London but of a slightly smaller dimension. In order to give some idea of parity and fair play, I think that the Government should ask those local authorities whether they would like to take advantage of such a scheme. I believe that they would wish to do so. I say that because if you pass through any of the big cities 809 in the evenings you can see homeless people trying to get their head down somewhere in order to get some kind of a night's sleep.
I understand that negotiations are taking place between the building societies or their umbrella organisation and the Government to try to deal with the matter. I believe that the noble Lord, Lord Thomson, referred to them. In view of the way in which the situation is accelerating—and no one can see any diminution of it unless something drastic is done—I wish anyone involved in those negotiations absolute success. But, in order to achieve an improvement, the Government must completely change tack and change their outlook as regards what they are really looking for in housing. An answer to the problem will no doubt mean that more public money will be needed. All the independent reports, especially those of His Royal Highness the Duke of Edinburgh and of the former Archbishop of Canterbury, say that large sums of money will be required.
When people involved in housing analysed the Autumn Statement which was made some weeks ago in another place, they said that not only was there no increase but that there was in fact a reduction in real terms. I took the trouble to read the Official Report of the proceedings in another place last week when the Statement on Scottish finance was made by the Secretary of State for Scotland. Donald Dewar, the Labour Party's Shadow Secretary of State for Scotland, made the same point. He said that every public service in Scotland—for example, health, education and rail—had received a percentage increase in real terms in order to enable in Scotland. In my opinion, that is an indication that the housing of our nation, whether it is owner-occupiers or tenanted people, is far too low in the Government's priorities. I hope that the Minister will give us some indication that they are reversing their views on the matter.
§ 7.44 p.m.
§ Baroness Blatch
My Lords, I should like to thank the noble Lord, Lord Ross, for initiating this debate. It is an important one. The number of times that we discuss the subject in this Chamber signifies how seriously the House takes the issue. It gives me an opportunity to put on record what the Government are doing about this very important issue.
The Government understand the trauma that repossession means for a family faced with the loss of a home. I do not seek in any way to belittle that fact. However, it is also important to keep the scale of the problem in perspective. I have heard a good deal of exaggeration of cases as I have sat and listened to the debate this afternoon. Indeed, over the past day or two I have read a fair amount of what I believe to be overstating of the case.
In the Social and Liberal Democratic document entitled A Home of My Own and also in an article in the Today newspaper on the same subject, statistics are used to overstate the case. Reference was made to 850,000 people in arrears. I have to say that that figure 810 includes borrowers who are only two months in arrears. Such arrears are often rectified very quickly and may perhaps have arisen as the result of a computer error. I also suspect that the figure has been arrived at by sample surveys, which I believe are much less reliable than the CML's own figures which are based on actual reports from members and were referred to by many speakers in the debate.
Another issue that I believe has been exaggerated concerns the percentage of those who are accepted as homeless as a result of mortgage default. I have to say that the official figure for that is 13 per cent. The House should not be deceived by some of the very high figures quoted from various sources. It is always possible to produce alarmingly high figures of the number of borrowers in arrears by including short-term arrears. For example, the noble Lord, Lord Ross, used the figure of 850,000. However, the vast majority of those arrears turn out to be, as I said, either errors or certainly situations where payments are made very quickly following one or two missed payments. It is equally possible to produce worryingly high figures. I see that the noble Earl wishes to intervene. I give way.
§ Earl Russell
My Lords, I am most grateful to the noble Baroness for giving way. Has she any reason to believe that the number of errors showing people to be in arrears when they are not is greater than the number of errors showing people not to be in arrears when they are?
§ Baroness Blatch
My Lords, I am concerned to gain some factual information from the lenders who tell us who has missed payments—whether it be one, two or more payments. That is real information concerning real people who borrow from the lenders. Those are the figures about which we are talking.
Very often repossessions are counted on the basis of the first warning being issued. Moreover, very often they do not result in a repossession taking place. If the advice given is wisely taken, that can resolve the situation before it becomes serious enough to result in repossession.
§ Lord Ross of Newport
My Lords, I think that the noble Baroness will agree that I actually quoted from Housing Finance which is a publication of the Council of Mortgage Lenders. I did not quote the figures about which she is talking. I hope that she will accept that fact.
§ Baroness Blatch
My Lords, I said that reference was made throughout the debate to the CML figures. However, I was also quoting from articles I had read and referring to what I had heard during the course of the debate.
As I was saying, it is equally possible to produce worryingly high figures of repossessions by examining the number of possession orders granted to lenders by the courts. But, again, by no means do all such possession orders lead to repossession. The figures should be treated with extreme caution. I suggest that we stick to the facts reported by the mortgage lenders. Two per cent. of all mortgage borrowers have significant arrears. Sadly, 36,000 borrowers were 811 repossessed in the first half of 1991. Again, perspective is important—36,000 people in difficulties out of a total of just under 10 million home owners who have a mortgage.
As I have said, just under 10 million homeowners have a mortgage. The figures published by the Council of Mortgage Lenders for the first half of this year showed that fewer than 0.4 per cent. of borrowers—about one quarter of 1 per cent. of all home-owners—were repossessed; more than 99.6 per cent. were not in difficulties and were not repossessed. At the end of June, just over 2 per cent. of borrowers were in arrears of six months or more, which means that nearly 98 per cent. were making their mortgage repayments as they agreed to, and consistent with their contracts. That figure differs from the 8.3 per cent. mentioned in the Today article. To describe the situation as similar to a wartime crisis is a considerable exaggeration.
The numbers demonstrate that the overwhelming majority of mortgage borrowers are managing. As I said, 98 per cent. are managing well. A small proportion of borrowers are in difficulties, while an even smaller number face the possibility of possession action. That is not to underestimate in any way the trauma and difficulties experienced by those whose homes are repossessed.
The second point about perspective is that we need to understand why the small volume of repossessions is increasing. We shall be able to target help to where it is most needed only if we understand the causes. We find that there is no single cause. It is not the case that large numbers of people who exercised their right to buy a council home are now facing repossession. On the contrary, our statistics demonstrate that former council tenants are least likely to get into such a difficulty. That is because the discounts offered to them meant that they required relatively modest mortgages as a proportion of today's value of their properties. Nor is it the case that people on the lowest incomes are in the greatest difficulty, because help is targeted on the unemployed and those on income support. Therefore, mortgage arrears are not, as is commonly supposed, a symptom of low income people forced into home ownership against their better judgment.
We find that those most prone to repossession come from a much wider range of incomes. They comprise people of all incomes who took out large mortgages with little or no equity; people who have suffered an unexpected job loss or a business failure; some who have run into difficulties through illness, injury or marriage break-up; others who had unforeseen financial commitments, or were merely rather poor managers of money; and others who, jointly with their partner, entered easily into joint mortgage arrangements without making provision for one partner leaving.
Just to emphasise that mortgage difficulties are not a phenomenon associated exclusively with low incomes, the House may be interested in a survey conducted a few months ago by the Skipton Building Society. That revealed that of all the professions represented by that society's borrowers who had faced 812 repossession the most common was accountancy. That is hardly the most underprivileged profession of which one can think, and, it is pretty inexcusable. Accountants are the people whose business it is to know about such things.
What is evident is that two new factors have swollen the figures during the past 18 months. First, recent market conditions have made it more difficult for borrowers with arrears to sell their homes and trade down to a cheaper property with a more affordable mortgage. Secondly, the figures are swollen by some people who detect that their total outstanding mortgage debt exceeds the current market value of their property and who try to walk away from their commitments by abandoning their property and sending the keys back to their lender, often without a forwarding address. Over half of the properties repossessed by lenders this year were in that voluntary repossession category.
The Government are of course worried about those in difficulty, and are not standing idly by, as has been suggested. But because the causes of the problem are varied, there is no single, simple solution to it. A number of organisations and political parties would have us believe that they have devised a mortgage rescue scheme; but when we look at their proposals we find a complete lack of understanding of personal finance, and no conception of what mortgage lenders and their insurance underwriters can and cannot do.
The problems have been addressed, but the cost of some of those schemes has not been addressed. I was grateful for the unsolicited intervention of my noble friend Lord Elton who pointed out that lenders also have an obligation to their depositors.
We have been talking to lenders and others about a number of ways of minimising repossessions, and we have been looking to see how existing arrangements can be made to work better. That is a direct response to a point made by the noble Lord, Lord Thomson of Monifieth. It is important to get all the interested parties together to address the problem, because we can all approach it from different angles and it is amazing how much more can be done when there is a meeting of minds on the issue. Our existing measures already cost over £500 million a year. The priority is to target that so as to avoid needless repossessions.
As has been mentioned a number of times today, the best advice that can be given to anyone who is having difficulty in maintaining mortgage payments is to contact the lender without delay and to talk the problem through. The advice of the CML is clear. If lenders are approached early, before arrears begin to mount up, most will be ready to help by rescheduling payments; allowing interest to be capitalised, where appropriate; or by accepting less than the required monthly payment for an extended period, if there is a reasonable prospect of the borrower then being able to resume full payment. That point was made by my noble friend Lord Campbell of Croy.
It is important to put on record how much is being done by lenders (the building societies and some banks) who share responsibility for us reaching this position by being rather too relaxed in their lending 813 policies. Nevertheless, they have seriously addressed the point by offering sound advice, but, of course, the advice needs to be taken early.
One of the most effective measures we have taken to help people in difficulty has been the reduction in interest rates by 4.5 per cent. in the past 14 months. The average monthly mortgage repayment is £70 less than it was in October last year. With interest rates falling, and income for those in work rising, that source of pressure is clearly reducing.
A large amount of direct Government help is targeted on the unemployed, and we have offered help through income support to mortgage borrowers who lose their jobs. Last year we paid over £550 million in mortgage protection through income support. One problem has been that not all that money has been used by claimants for the intended purpose, as was pointed out by the noble Lord, Lord Ross, and others. To remedy that, last month we introduced improved DSS arrangements so that the mortgage lender knows when the borrower is about to make a claim. In future, no borrower eligible for income support need lose his or her home.
We have grant-aided the National Association of Citizens' Advice Bureaux for its work on money management counselling. Anyone in difficulty with their mortgage can obtain help and advice from their local bureau. As I have said, it is important that people have access to that advice and take steps to discuss their difficulties with lenders.
Some local authorities and housing associations are also he ping borrowers to stay in their homes by arranging shared ownership schemes under which the borrower continues paying a smaller mortgage together with a subsidised rent. That was a scheme outlined by the noble Lord, Lord Ross. That is the opposite of the scheme which converts rents to mortgages. In addition, some lenders and insurance companies are developing further options of their own. All of that we encourage.
The Government also recognise that it is better, where possible, to keep people in their homes, and the measures that I have described are designed to enable them to do just that. Mortgage lenders too are moving towards hat view, and many already give considerable help. A repossession profits no one; so a great deal is being done for those who may face difficulties with their mortgages. Yet, even with those and other measures, not all borrowers can be, or want to be, helped. Over half of the properties recently taken into possession by building societies were, as I have said, voluntarily relinquished or simply abandoned. Building societies have up to 40,000 empty properties for disposal, and they can be hard to sell. With that in mind, we recently announced a new initiative with the CML to help bring some of those empty homes back into use. Rather than allow them to remain empty until new buyers can be found it makes sense to offer some immediately to homeless families. The houses can be let to housing associations for periods of between one and three years and occupied by homeless families, supported by housing benefit. Later, when the property is eventually sold, the lender 814 should get a better price than through a forced sale at this time. This reduces the losses of both lenders and borrowers.
In the meantime, the property is maintained, squatting is eliminated and the costs to local authorities of tackling homelessness are reduced. The process also helps to stabilise house prices by controlling the rate at which empty property is offered in the market. This imaginative scheme works to the benefit of all. The House will be interested to learn that already 77 housing associations have told us they want to help with this initiative.
I say to my noble friend Lord Campbell of Croy that so far that figure applies only to England, but there is nothing to prevent similar schemes taking place in both Wales and Scotland. However, predominantly the repossession problem affects England.
I should now like to say a few words about the effect of repossessions on the homelessness figures. Most borrowers who actually lose their homes rent or move in with family or friends. Latest returns from local authorities, published yesterday, show that of all the households that were accepted by them in the third quarter as homeless, only 13 per cent. had lost their settled home as a result of mortgage arrears. Eighty-seven per cent. were due to other causes.
Although the number of homeless acceptances arising from mortgage arrears is rising slightly, the vast majority of homeless acceptances continue to result either from parents or friends no longer being willing to offer accommodation—I understand that that figure is 40 per cent.—or from marital disputes which account for 16 per cent.
But although mortgage defaulters are only a small proportion of the statutory homeless, it remains the case that the homelessness legislation ensures that no mortgage defaulter who is found to be unintentionally homeless and in priority need is ever without a roof over his or her head. As noble Lords will be aware, over the past two years the Government have made available more than £300 million, which the noble Lord, Lord Ross, asked me to confirm, to provide more permanent homes for homeless families—a programme which will have produced more than 16,000 new units of permanent accommodation.
The noble Lord, Lord Ross, was absolutely right to warn us of any policy which aims to assist people in these difficulties which causes a greater distortion elsewhere. If that happens, we must be vigilant; therefore his warning will not go unheeded by my department.
I believe that the noble Lord, Lord Dean of Beswick, ignored much of what my honourable friend in another place, the Minister for Housing, is doing for rough sleepers in London and the success of his policies.
§ Lord Dean of Beswick
My Lords, will the noble Baroness permit me to say that I do not at all ignore what Sir George Young is doing; he is doing very well. But although the money he is allowed has increased, through lack of money he is not able to tackle the job; he is only scratching the surface. All the figures show that the situation is still deteriorating; it is not even slowing down.
§ Baroness Blatch
My Lords, I can positively refute what the noble Lord said. The figure is not increasing; it is positively reducing. The number of rough sleepers in London is positively being reduced and there are even many places in hostels which are not taken up. A great deal of effort is being made by my honourable friend in another place and his colleagues in the department to do what they can to take people off the streets of London and encourage them to take up some of the places that have been provided as a result of his initiative. In addition, I believe that he is addressing another problem which is very important. Although the noble Lord, Lord Ross, did not raise it in this debate, he has raised it in other debates. It is the problem of second stage accommodation for rough sleepers. It is not just about taking them off the streets of London and putting them into hostel accommodation; one must then think about the second stage and wean them on to more permanent accommodation.
§ Lord Dean of Beswick
My Lords, I suggest that the Minister visits those localities in the centre of London during the night and does not rely on figures given to her by the Civil Service.
§ Baroness Blatch
My Lords, the noble Lord does my colleagues in the department a great injustice. Not only does my honourable friend in another place, the Minister for Housing and Planning, go out physically to address the problem, but so does my right honourable friend the Secretary of State and also many officials in the department. It is not a matter of sitting behind desks addressing the problem; colleagues are out on the streets of London making sure that the policies they put in place are successful.
The noble Lord, Lord Dean, referred to what he said was the Department of the Environment's own figure of a requirement for 100,000 houses a year. That is not a Department of the Environment figure, although it is a figure frequently referred to by the noble Lord.
The noble Lord, Lord Dean, also referred to the number of houses built by housing associations. Again, for the record, during the last financial year housing associations completed 21,600 homes with corporation funding. The corporation's target for this year will be 25,000 houses and around 120,000 homes are due to be completed over the next three years.
The noble Lord, Lord Dean of Beswick, again queried why the Government are offering grants of up to £17,000 to landlords. I have to say that I am rather surprised by his reaction to that announcement; he says that he does not welcome it. The grant is to help landlords make flats above shops suitable for letting. I hope that bringing those flats into use is precisely what the scheme was designed to achieve.
§ Lord Dean of Beswick
My Lords, in this case the noble Baroness is completely wrong. The document from which I read, and which I have sent to Hansard, was placed on my desk; it came from the noble Baroness's department. It states clearly that the money is to be made available to council house tenants in the London area so that they will give up the 816 tenancy of council houses which can be let to someone else who can then purchase the house. It has nothing to do with flats above shops.
§ Baroness Blatch
My Lords, if I misquoted or misinterpreted what the noble Lord said, I apologise. I thought that he was referring to the announcement on 4th December. If that was what he was referring to, the specific grant of £17,000 was to bring flats over shops back into being.
§ Lord Sefton of Garston
My Lords, I should like to get this clear. The noble Lord, Lord Dean, said explicitly—and I have not read the briefing paper—that a grant of £17,500 would be given to someone in rented accommodation in order to put them on the ladder of house ownership. He also stated that it was confined to the South East of England. I should like to know whether or not that is true.
§ Baroness Blatch
My Lords, I have already said to the noble Lord, Lord Dean, that if I misinterpreted him, I shall of course put it on record, correct it and write to him. At this moment there is a misunderstanding on my part of the reference which the noble Lord made.
§ Lord Sefton of Garston
My Lords, I apologise, but do I take that to mean that the Minister does not know anything about the briefing paper that was issued by her department? If so, will she look at it and write to me?
§ Baroness Blatch
My Lords, it is possible that I am not aware of it. I am certainly aware of leaflets and pamphlets from my department. If I have misinterpreted another publication from my department which I have confused with this one, we may be referring to two different documents. I apologise for not being able to respond specifically at the moment, but I shall write to the noble Lord and put the matter right.
§ Lord Sefton of Garston
My Lords, let me make it quite clear, from one Merseysider to another, that I am not blaming the Minister, but I think she should look at her department.
§ Baroness Blatch
My Lords, I have gone out of my way to agree that there may be a difference of opinion and to say that whatever happens I shall make sure the matter is corrected in due course.
The noble Earl, Lord Russell, referred to exchanging non-performing loans for equity mortgage arrangements. Again, it is an interesting idea and it is already being examined by lenders and their insurers. The noble Earl is of course right that this option is available only to a few borrowers who are in trouble. The Government are encouraging the lending industry to look at new methods to replace repossession, which helps no one. Nevertheless, there is a cost for these schemes and it must be considered. It is important to remember that the lenders have other obligations too. Perhaps I may leave it at that.
The noble Lord, Lord Ross, referred to mobile homes. I acknowledge that that is another interesting idea. I understand that the Housing Corporation is 817 already looking at it as a temporary measure. The noble Lord will probably appreciate the point if I also say that it would help if some local authorities were slightly more accommodating when considering planning applications for such schemes.
Again, the noble Lord, Lord Ross, referred to direct payment of income support to lenders. As I think the noble Lord knows, this idea is under urgent discussion between the DSS and the Council of Mortgage Lenders. I very much welcome the noble Lord's support for that measure. It is possible that direct payments have been opposed for too long by libertarians who argue that claimants should choose for themselves how to spend their income support.
My noble friend Lord Campbell of Croy asked what other schemes were in place to try to prevent repossessions. There are a number of such schemes and my list is not exhaustive. It is most important to ensure that there is a reduction in interest rates. We believe that is fundamental. Other schemes include Estate Action, Housing Action Trusts, a rural housing initiative, and a scheme that encourages flats over shops to be used as accommodation. There are schemes for converting rents into mortgages and there are right-to-buy schemes. We are encouraging local authorities, housing associations and lenders—I believe we are being successful—to enter into shared ownership or renting arrangements. The noble Lord, Lord Ross, referred to that matter.
We also welcome the Government's policy in the inner cities, as does the noble Lord, Lord Ross. I personally can testify that now there is a great deal more willingness on the part of Labour controlled authorities to consider mixed tenure schemes than in the past. In the past those authorities were resistant to mixed tenure, but they are now very positive about it. Some exciting schemes are being initiated all over the country.
Many people now own their own homes and the vast majority of them—98 per cent. —are meeting their housing costs. I have described the considerable amount of help which is available from the Government and from lenders to those who, through misfortune or mismanagement, find themselves in difficulty with their mortgages. We shall continue to work with all concerned to ensure that help is targeted to where it is needed most. We shall give every encouragement to the provision of increased information and education. That will prove an effective and preventive measure.
This has been an important debate and I shall report back all the messages from it to my honourable friend in another place, the Minister responsible for housing. As a result of the steps already announced under the new initiatives being developed in the private sector, I believe that before long we shall see a reduction in the volume of repossession cases. Let us all hope that that is the outcome of the policies that are now in place.
§ 8.12 p.m.
§ Lord Ross of Newport
My Lords, I say "amen" to the final words of the noble Baroness. I hope she is proved correct, although I fear that that may not be 818 the case. I thank all those who have taken part, in the debate. Not many noble Lords have taken part, but the speeches have been of a high quality. The speakers included noble Lords with an interest in building societies. My noble friend Lord Russell suggested an interesting idea of a creeping equity scheme. I hope I may describe it in those terms. It would be marvellous if we could return to a system of fixed term mortgages at fixed rates of interest. If we can keep down inflation, we might be able to return to such a system. However, that is a long way off yet.
I hope my building society friends did not feel I was too tough on building societies. I did not intend to be, as in general I have a high opinion of them. I wish they had never entered the estate agency business, but apart from that I believe they have behaved extremely sensibly. I have some money deposited in one of the smaller building societies and I am a little worried about that at the moment.
I am, however, concerned about some insurance companies that have lost a great deal of money because they took on indemnities. Perhaps the large companies can bear the loss, but it means their rates will increase substantially, and that is not good news. I referred to a figure of £3 billion that was provided by the insurance companies. I hope the Minister will accept that all the figures I quoted came from official sources, except in one or two cases. I referred to comments made by the chairman of a building society, Tim Melville-Ross. He said that a figure of 150,000 repossessions for next year was a conservative estimate. I suggest the Government may be underestimating the problem.
I have acknowledged from the very first that the Government have instigated a lot of initiatives on this matter. They have tried hard to tackle the problems of those sleeping rough in London. The magazine of Shelter, Roof, indicates that the Government's initiatives have had some effect. There are some people who will not enter accommodation that is provided for them. I try to leave London as fast as I can and I have not walked along the Strand or along any other streets in London recently to see what the position is. I recognise that the Minister responsible for housing is a former chairman of the all-party group on the homeless. I am the treasurer of that group. He has visited sites where people sleep rough and I have no doubt he continues to do so.
I believe the scheme the noble Lord, Lord Dean, referred to is one that offers grants to people living in council houses in the South East to enable them to move into the private sector. I agree with the noble Lord that it is unfair to apply that scheme just to the South East. Nevertheless, that scheme has existed for a long time and the size of its budget is certainly attractive. The other day I watched "Panorama" on television. Shopkeepers in Croydon were asked whether they would be willing to let the accommodation over their shops. The shopkeepers were resistant to that suggestion as they feared breakages and other such damage. That is not an easy idea to sell.
I admit that my speech was rather muddled. Yesterday a mortgage rescue scheme was promoted by Messrs. Webb and Wilcox. I accept that the scheme 819 would be expensive to implement. My speech was rather confused as regards the different schemes available and I apologise if the Minister is confused. The mortgage rescue scheme would involve a figure of some £400 million. However, we gave that kind of money, on loan, to building societies in 1974. I am sorry to be a Jeremiah. I hope to goodness I am wrong and that the Minister is right, and that things turn out much better than anticipated. I fear the worst, however, and over the next few months I believe the Government must produce something rather more substantial than they have done up to now. I again thank everyone who has taken part in the debate and I thank the noble Baroness for her reply. I beg leave to withdraw the Motion.
§ Motion for Papers, by leave, withdrawn.