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Advances Secured On Land

Volume 98: debated on Wednesday 4 June 1986

The text on this page has been created from Hansard archive content, it may contain typographical errors.

Amendments made: No. 38, in page 13, line 19, leave out from 'land")' to end of line 20 and insert 'secured by'.

No. 39, in page 13, line 37, at end insert

'and a reference to the land which is to secure an advance or on which an advance is secured is a reference to the estate or interest or the heritable security which constitutes the basic security.'.

No. 40, in page 13, line 37, at end insert—

'(2A) The power to make an advance secured on land includes power, subject to the restriction imposed by subsection (2B) below, to make, as a separate advance, an advance which is to be applied in or towards payment of the deposit for the purchase of the land (in this Part referred to as "an advance for a deposit for the purchase of land.")
(2B) The restriction referred to is that an advance for a deposit for the purchase of land must not exceed 10 per cent. of the total amount to be paid for the purchase of the land.'.

No. 41, in page 13, line 38. leave out 'as made on the security of and insert

'for the purposes of this Act as secured by'.

No. 42. in page 14, line 31, at end insert 'and'.— [Mr. Ian Stewart.]

I beg to move amendment No 414, in page 14, line 35, at end insert—

'(6A) A building society, once it has advanced money on the security of an equitable interest in land in England and Wales or Northern Ireland, may not sell on that loan without the express permission of the borrower which shall be obtained according to a code of practice which shall be agreed between all the building societies and which shall have received the approval of the Commissioners.'.

The purpose of this amendment is to deal with the growing market and to ensure that the borrower's interests are protected. When I raised this issue on Second Reading, the Minister said that it would be up to the
"borrower to ensure that the terms of a second mortgage were suitable." [Official Report. 19 December 1985; Vol. 89, c. 602.]

I think that he said that because he did not actually hear what I said. I hope that it was for no other reason. Of course, I was talking about the growth of the secondary mortgage market and urging that the borrower's interests there should be protected. Since Second Reading and our debates in Committee, I know that the Minister has taken a great interest in this issue and has encouraged his hon. Friend the Minister for Housing, Urban Affairs and Construction to propose the need for a code of practice. A draft code of practice has been drawn up by the Building Societies Association. I hope that a final draft will be forthcoming.

It is worth saying something about the need for protection as this is a new market in the United Kingdom. It has attracted interest in United Kingdom mortgages from investors as far afield as Canada and Japan. Part of the attraction lies in the fact that, at the moment, the rate of default is extremely low, although that rate has increased partly because of increasing unemployment and partly because of the continuing high rate of divorce.

9.15 pm

Like many other newspapers, The Times recently carried an article on the growth of the secondary mortgage market, which said:
"To reassure borrowers the new market will have to develop guarantees that the responsibility for, say, setting interest rates and foreclosing on people who do not repay will remain with an identifiable lender and not be sold along with the underlying asset."
That is vital. I am sure that we have all corresponded with a building society about a mortgagee who is in arrears and been able to negotiate different terms for repayment to tide the borrower over a period of difficulty. That has often been easy because the branch is local and the manager knows the borrower. If mortgages are sold on and can be purchased by a foreign investor or a large finance company, however, that relationship may no longer exist. It does sometimes. It depends on what type of arrangements have been made by the purchaser of bundles of mortgages.

The matter requires a code of practice even more now than when we raised the issue in Committee and on Second Reading. Since then, the Government have announced that, for the first six months in which somebody is in receipt of supplementary benefit, payment of mortgage interest by the DHSS will be halved. The Opposition have had much to say about that. Just when people need most help and have very low incomes— they can build up substantial mortgage arrears over only six months— mortgage interest payments are halved. They may be unable to make up those arrears easily, even when the DHSS restores full interest payments if they continue to be in receipt of benefit. Bearing in mind the Government's change of policy, a proper code of practice is even more necessary. That is another issue on which consumers support the need for a code.

The Times article says that the fears of a new breed of ruthless investor entering the market who is willing to foreclose at the drop of a hat
"were highlighted when Barclays canvassed the opinions of its borrowers on the sale of their mortgages and received an unequivocal thumbs down to the idea late last year."

The Government are pursuing a voluntary code. That is an important step forward. The amendment proposes that the code should be compulsory and be agreed between the Building Societies Commission and the building societies. That would ensure that nobody could escape from the obligations, in a changing market, that they have taken on towards a borrower. It would also ensure that borrowers' interests are properly protected, even when their mortgages are sold in the United Kingdom or to foreign investors.

The matter is one of social concern. We must ensure that borrowers' interests are protected, especially when they hit hard times. They must be able to continue to deal with the person who gave them the mortgage.

In asking the House not to accept the amendment I do not want it to be thought that I ant in any way unsympathetic towards the remarks of the hon. Member for Thurrock (Dr. McDonald). There is a fair degree of unanimity between us. However, as she would be the first to recognise, the amendment would apply only to building societies. As she said, it is not necessarily the building societies which are likely to abuse the ability to transfer a mortgage. She referred to a new type of ruthless investor coming to the market who might foreclose more easily than building societies. The amendment would not cover the new ruthless investor.

I am convinced that we need a broader approach to the problem which covers all people who loan on mortgages, rather than just building societies. I am therefore not convinced that the amendment represents the best way to proceed.

The hon. Lady may have seen a speech which my "ion. Friend the Minister for Housing, Urban Affairs and Construction made on 8 May. My hon. Friend said that he had great reserations about the selling of existing mortgages unless the borrower gives explicit consent to the sale. He also said that he did not necessarily feel that: the Building Societies Bill was an appropriate vehicle for changes, because any code of practice would apply to all those in the mortgage market, not just the building societies. He went on to say that the Government would be examining with interested organisations the appropriate arrangements to protect the legitimate interests of borrowers while enabling innovation in the mortgage market to bring the full benefit of additional funds for home ownership and wider choice in the types of loan.

Since making that speech, my hon. Friend has asked his officials and officials at the Treasury to discuss the matter with representatives of all those involved in the mortgage market. These discussions have covered the steps that need to be taken to protect the borrowers' interests. My hon. Friend hopes shortly to make an announcement which will be of considerable interest to the hon. Member for Thurrock and to the House as a whole.

The Government share the anxieties of the hon. Lady that ordinary borrowers should be protected in the market in which they play an active part but over which they have no control. We do not believe that it would be helpful to tackle the problem piecemeal. The mortgage market is no longer the exclusive preserve of the building societies. We are at present actively pursuing an initiative which will cover the whole market and examine the need to protect borrowers in the many different areas of the market.

Against that background, I ask the hon. Lady to await my hon. Friend's announcement, which he will make shortly, and not to pursue the amendment.

Amendment negatived.