HC Deb 16 January 1974 vol 867 cc94-7W

General Objectives 1. The Government and the Council of the Building Societies Association agree that, subject to such overriding considerations as may be required by the Government's overall economic and social policies and to the prudent management of building societies as mutual institutions, their common objectives are:—

  1. (i) to continue to support the growth of owner-occupation ;
  2. (ii) to produce and maintain a flow of mortgage funds to enable the house-building industry to plan for a high and stable level of housebuilding for sale ;
  3. (iii) to contribute towards the stabilisation of house prices ;
  4. (iv) to maintain an orderly housing market in which, subject to (iii) above, sufficient mortgage funds are available to allow purchasers to exercise a reasonable choice of owning the sort of house they want.
The Government note that the building societies have successfully fostered the continuous growth of owner-occupation which has arisen from just over 25% of the housing stock by the end of 1944 to over 50% by the end of 1972. The Government and the Council of the Building Societies Association agree that building societies will continue to be the chief source of mortgage funds for house purchase. They further agree that, if the above-mentioned objectives are to be successfully realised, the borrowing, lending. and interest rate policies of building societies must be designed to result in a stable supply of mortgage funds appropriate both in relation to the level of effective demand and the supply of new and existing dwellings for sale.

Borrowing and lending policies 2. The Government and the Council of the Building Societies Association consider that the objectives in paragraph I are likely to be most readily achieved by a system based on a more flexible approach to changes in the rate paid to investors but, as far as possible, with the minimum frequency of consequential adjustments to the mortgage rate. They agree that the achievement of the overall objectives would also be assisted by a flexible use of liquidity within the limits of prudent management, over short-term periods between necessary changes in the investment rate, and by appropriate selective lending policies. The Council therefore agree to be ready:

  1. (i) to recommend changes in the investment rate as frequently (within the limits of practicability) as appears necessary in the light of the prevailing general level of interest rates to provide a flow of mortgage funds at the level required to achieve the objectives in paragraph 1 ; and, with the minimum possible frequency, to recommend consequential changes in the mortgage rate. This could involve a widening or narrowing of the margin between the investment and the mortgage rates from time to time ;
  2. (ii) to advise member societies to adjust their lending policies especially as regards second-time purchasers*, if it appears at any time that excessive mortgage funds might otherwise be released in relation to the number of purchasers and the supply of dwellings with a consequent undesirable rate of increase in house prices ;
  3. (iii) to offer guidance to member societies collectively on the desirability of adjusting liquidity to make good a temporary shortfall or excess of funds between alterations in the investment rate ;
  4. (iv) to encourage member societies, especially if there is a temporary shortfall in the inflow of funds, to lend to creditworthy borrowers on suitable properties in the following order of preference:
    1. 1. first-time purchasers ;
    2. 2. purchasers of new dwellings ;
    3. 3. second-time purchasers if they are obliged to move urgently ;
    4. 4. second-time purchasers of existing dwellings where the transaction is known or believed to be linked directly or indirectly to categories 1–3 above ;
    5. 5. other second-time purchasers ;
    6. 6. those borrowing for other purposes including housing societies and similar bodies.
It is recognised that, in applying this order of preference, building societies will continue to give priority to existing members. * NOTE: In the Memorandum a "second-time purchaser" means any purchaser not purchasing for the first time.

Advisory Committee 3. The Government and the Council of the Building Societies Association have agreed that in order to assist in furthering the objectives set out in paragraph 1 a Joint Advisory Committee on building society mortgage finance will be established forthwith. The Committee will consist of representatives nominated by the Building Societies Association and the Government.

Functions of the Advisory Committee 4. The Advisory Committee will normally meet monthly and will:

  1. (i) provide the Council of the Building Societies Association with a forecast, normally for a period of one year ahead, and which will be reviewed periodically, of the investment receipts required to realise the objectives set out in paragraph 1 above (the main factors which will need to be taken into account in the forecast are set out in Annex A to this Memorandum),
  2. (ii) provide the Council of the Building Societies Association with an agreed analysis and review of the current situation with particular reference to changes in interest rates in the economy generally, the inflow and outflow of building society funds, advances to first-time purchasers, housing starts and completions and house prices.
The Committee will thus be a new source of information to the Council of the Building Societies Association when the latter reaches its own judgement on what recommendations to make, or advice to give, to member societies.

Recommendations and advice of the Council 5. The Council of the Building Societies Association as the representative body of building societies has accepted the objectives and policies set out above and is recommending these to its members. In the meantime, the Boards of Directors of the twenty largest building societies listed in Annex B to this Memorandum, in recognition of the importance to existing and future owner occupiers of the successful realisation of the objectives set out in the Memorandum, agree to support recommendations made or advice given by the Council in the light of reports given to the Council by the Joint Advisory Committee, subject only to the constraints imposed upon them by their obligation to manage their societies prudently in accordance with their responsibilities under the law and to the members and depositors in their societies.

Forecasting In calculating the net receipts required by building societies over the forecast period, the following factors are likely to be among those that need to be taken into account.

  1. (i) In estimating the level of national effective demand
    1. (a) the number of new households formed, and of existing tenant households, who can afford and may wish to become owner-occupiers ;
    2. (b) the number of owner occupied households who may wish to move and buy different dwellings ;
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    3. (c) the number of owner occupied households displaced by demolition or closure and who may wish to remain as owner-occupiers ;
    4. (d) the effect of rising incomes on the amount and standard of owner occupied dwellings demanded ;
    5. (e) any relevant Government policies.
  2. (ii) In estimating the level of national supply of dwellings for owner-occupation:
    1. (a) the number of new dwellings which the building industry is likely to complete in the light of the cost and availability of land, labour, building materials and credit, and the potential selling price ;
    2. (b) the number of existing dwellings available for sale where the owner does not intend to buy another dwelling for owner occupation, e.g. dwellings sold on emigration or death of the owner ; formerly rented dwellings sold with vacant possession ;
    3. (c) the number of existing dwellings available for sale where the owner intends to buy another dwelling for owner occupation, sub-divided into those where the sale is (i) linked to the sale of new houses, sales to first-time purchasers or sales to existing owner-occupiers compelled to move urgently or (ii) is not so linked.
  3. (iii) The total number of transactions likely to be financed by building societies as opposed to other sources.
(iv)(a) The average advance on new and existing dwellings to be financed by building societies less estimated building society receipts from repayments of principal on outstanding mortgages ;
  1. (b) the average level of liquidity for all societies.

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