My Department maintains close and continuing contact with the building societies on a wide range of topics, including interest rates. At the present time we attach particular importance to stabilisation of mortgage funds. The appropriate level of mortgage interest rates has to be judged both in terms of that objective and in relation to other interest rates generally.
I thank the right hon. Gentleman for that reply. However, does not he think that the reduction in interest rates coupled with the large inflows of funds to the societies means that some positive steps could be taken either by the societies or by the Government, or both? In view of the simultaneous rise in mortgage rates which people with local authority mortgages are having to pay, if the right hon. Gentleman cannot get the building societies to help him to reduce rates will be discuss with them a posssible reallocation of the sums of public money available, so that money could be made available to local authorities for a reduction in interest rates for people who have local authority mortgages?
On the latter part of that question, following the discussion about Section 105—indeed, the previous Question—I shall be asking the building societies tomorrow to enter into discussions with local authorities to try to make good the shortfall in local authority lending involved in the switch of £100 million. On the first part of the question, the real difficulty is that if the societies were to reduce the mortgage rate below 11 per cent. they would certainly have to reduce the investment rate below 7 per cent., to which they have in any case reduced it. We think that if they were to reduce their investment rate below that figure of 7 per cent. we should begin to jeopardise the flow of mortgage money this year. We are not prepared to do that.
May I draw my right hon. Friend's attention to the plight of those who have a mortgage from a local authority? It is a matter of real urgency. In my local authority, from 1st June these people are likely to be faced with a 13½ per cent. interest rate, which is some 2 per cent. higher than—
I am aware of this problem. There are altogether some 50 authorities charging a mortgage rate higher than 11 per cent. I should dearly like to do something immediately for those authorities in that situation. I fear however, that I have not found the answer to this problem. I am not in a position to give an additional subsidy to local authorities in order to cover this point, and the sort of loan we gave to building societies last year, which is now very nearly repaid, would not assist. Sadly, I cannot pretend that I have yet found the answer to this problem.
Does not the Secretary of State agree that what militates against the lowering of the building societies' lending rate is not their borrowing rate, which is highly competitive today with bank deposit rates, but the effect that the Budget has had on the composite rate of tax payable by building societies, which has risen considerably, preventing building societies from lowering their lending rate? Should not that be the area in which the Government give assistance?
I am surprised to find the hon. Gentleman advocating a further Government subsidy. The fact is that the two successive increases over the last 12 months in the composite rate have been covered, as far as the building societies are concerned, by the reduction in their borrowing rate to 7 per cent., which has restored the margin upon which they were operating a year ago. I am afraid the problem is not as simple as the hon. Gentleman suggests.