Variable Rate Mortgages (Hansard, 25 July 2002)

§ The Minister of State, Office of the Deputy Prime Minister (Lord Rooker)
My Lords, it is estimated that 62 per cent of mortgages taken out for house purchases in the UK in 2001 were at a variable rate of interest. 530 The equivalent for 1998 was 43 per cent. The number of fixed and variable rate mortgages in a specific year will be influenced by a number of factors. Consequently, the relative popularity of fixed and variable rate mortgages among home buyers in a particular year is not a reliable indicator of the corresponding figure for all outstanding loans.

§ Lord Lamont of Lerwick
My Lords, I thank the Minister for that reply. Does not the fact that the proportion of variable rate mortgages is so high in the UK mean that, if Britain were in the euro, the British economy would be much more sensitive to interest rate changes than other European economies? Has not a committee under a former Deputy Governor of the Bank of England, Mr. Pennant-Rea, estimated that the UK economy is up to four times as sensitive to interest rate changes as other European economies? Has not Professor Eltis, of Oxford, estimated that if Britain were in the euro two-fifths of the changes in European interest rates would be felt within the UK economy? Is it not clear that Britain's mortgage market has to change before consideration could be given to joining the euro; and is it not clear from the figures given by the Minister that that change is not happening?

§ Lord Rooker
My Lords, I have waited eight weeks for a housing question to come along, but the Question turns out to be about the euro, not about housing. The issue raised in the Question is not the responsibility of my department—the Government do not give mortgages. All I can say to the former Chancellor is that I am armed with lots of statistics, including the levels of repossessions and mortgage interest rates when he was in office.
For people buying homes, the market remains affordable. To give an example, the mortgage payments for households that have bought a house in the first quarter of 2002 amount to only 16 per cent of their income; the comparative figure in 1990 was 27 per cent.

§ Lord Strathclyde
My Lords, how could the Minister possibly have been briefed on this Question, given where it came from, without the possibility being raised that it might be about variable and fixed interest rates compared with those in Europe? Surely, when he returns to his department, he should complain at the highest level about the quality of his briefing, so that when he comes to answer Questions in this House he is properly briefed. If a government Minister does not have the answer to the questions raised by my noble friend Lord Lamont, he should re-examine his brief very carefully.

§ Lord Rooker
My Lords, there is no problem. I am fully briefed on the situation, but I thought that it might be a genuine question about the housing needs of people in this country. As has repeatedly been made clear from this Dispatch Box, mainly by my noble 531 friend Lord McIntosh, the Government are not going to give a running commentary on the five economic tests, and that is that.

§ Baroness Maddock
My Lords, is the Minister aware that the take-up of mortgage payment protection insurance among flexible rate borrowers is below average? Is he further aware that very few people with flexible mortgages make regular over-payments or one-off payments explicitly to guard against future health problems or unemployment? What plans do the Government have to assist home owners to be more secure? Have the Government considered introducing a mortgage benefit to help those who own their homes with housing costs, in the same way as housing benefit helps those who rent homes in the public and private sectors?

§ Lord Rooker
My Lords, the noble Baroness is right. We now have flexible mortgages. Recent research sponsored by my department and the Council of Mortgage Lenders was published only a few days ago. It is true that flexible mortgages represent a rapidly growing share of mortgages in certain sectors of the market—particularly among those in the A-B economic class and those who have owned more than one property in the past. It is now known to people that mortgage flexibility can be used, for example, to avoid possible repossession in the future. Therefore, it is highly unlikely that in the future we shall face the kind of situation that occurred previously, when repossessions by lenders were running at 60,000 to 70,000 a year. At present, the figure stands at about 18,000 a year. So interest rates are a lot lower and there is a great deal more flexibility to pay more in good times and less in bad times. That evens out the situation, making it less likely that the threat of repossession will ever return to this country. We shall do what we can to push the idea of flexible mortgages.

§ Lord Lamont of Lerwick
My Lords, since the Minister has given me more or less the same reply on mortgage finance as he gave me the other day on the European arrest warrant, perhaps I may ask him another question about mortgage finance. Will he at least confirm that, despite the fact that official interest rates are higher in this country than in Europe, mortgage rates in this country—because of our competitive market—are lower than they are in Europe in many cases?

§ Lord Rooker
My Lords, present mortgage rates, even without the benefit of tax relief, are lower than they ever were in the early 1990s with tax relief. So they are a bargain. As the former Chancellor tempts me even further, I shall repeat what the current Chancellor said in his Mansion House speech in June. It is on the record. He said that, under the convergence tests, one of the supporting analyses will be concerned with assessing the behaviour of the housing market and its impact on consumption—and beyond that there is no need to go. That is all it is about—a running commentary on the five tests. Well, I am not doing it.