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Building Societies Association

Volume 932: debated on Wednesday 18 May 1977

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19.

asked the Secretary of State for the Environment if he has had recent discussions with the Building Societies Association.

24.

asked the Secretary of State for the Environment when he next proposes to meet representatives of the Building Societies Association.

I met the chairman and the chairman-designate of the Building Societies Association on 6th May. I am ready to meet the new chairman again whenever the need arises, and my Department maintains continuing contact with the association.

Is it not now clear that if the building societies had yielded to Government pressure three months ago to reduce their lending rates to the level likely to prevail after next month, the amount of money available for new mortgagees this summer would be substantially less than it is now likely to be? In those circumstances, does the right hon. Gentleman agree that the building societies must keep a balance between investors, existing borrowers and new borrowers? Is that not an indication that less Government pressure on the building societies in future would be welcome?

I think that the hon. Gentleman is right, in that there is clearly a need for a balance of considerations in the building societies' policy on mortgage interest rates. I do not know where he gets the idea of the building societies yielding or not yielding to Government pressure. I take the opportunity of making plain my own view. I believe that mortgage interest rates should be determined, and are bound to be determined, by the building societies. I cannot do that. However, my wish is to see determined as quickly as possible the lowest level of rates consistent with a flow of funds sufficient to meet the demand for mortgages in the foreseeable future.

Is the right hon. Gentleman satisfied that good enough liaison machinery exists between the building societies, the monetary authorities and himself to ensure that building society rates do not get too far out of line for too long? In that context, what advice is he now giving building societies about interest rates for the next six months?

Views are exchanged on these matters. The building societies are conscious when they are out of line with competing monetary rates. If they are out of line one way, they suffer a considerable loss in the inflow of funds. If they are out of line the other way, they have a considerable influx. They take account of both those situations in determining their interest policy.

Does my right hon Friend agree that the wide discrepancy between general interest rates and mortgage rates, which adversely affects many of those who want to buy a house, indicates clearly that the crazy system that the building societies operate should make way for a nationalised system in which local authorities, or Government agencies, may lend the money on a more equitable and reasonable basis?

I did not really follow my hon. Friend's argument, which inevitably was advanced in a terse form, as it was put in a supplementary question. I am not clear in which respect he thinks that the system is insane. As long as housing finance rests largely on one group lending money and another group borrowing it, clearly interest rates will have to take account of the interests of both. That is what building societies do. We can argue about the practices of building societies, and we have had many such exchanges. The House knows that I am anxious to get the building societies to take a more positive view, especially in helping those with lower incomes and avoiding the practice of red-lining.

Does the right hon. Gentleman agree that the practices of the building societies are totally influenced by the climate of the Government's financial performance? Is he aware that there have been about 52 changes in minimum lending rate in the past four years? Does he accept that earlier this year the Government were offering 8·78 per cent. net of tax interest, which took about £150 million that otherwise would have gone to the building societies?

I am not sure that I can confirm that. Obviously we want to encourage a certain stability in the building societies' lending policies, both in terms of the quantity of money that they have available to lend and the interest rates that they are charging. That is a different consideration from the inevitably shorter-term movements of MLR.

Does my right hon. Friend agree that the principal fault of the building societies is that they are always reluctant to reduce rates when interest rates are down and only too willing to raise them when they are on the way up? Does he also agree with the criticism of many hon. Members who represent inner city areas that the building societies are reluctant to lend money on older properties?

I understand and agree entirely with my hon. Friend on the second point.

On the first point, the House should remember that in 1973, under the mismanagement of the Conservative Government, the building societies suffered from a serious mortgage famine, which was far more disruptive to would-be owner-occupiers and, indeed, to the house construction industry than if they had pursued a policy that maintained their lending rate in a more orderly way, even though interest rates have had to go up.