It is a pleasure to follow Mr. Mudie, who is a formidable and knowledgeable member of the Treasury Committee. Unlike him, however, I will need no prompting about when to sit down, as I propose to make a relatively short contribution. The best bit of his speech was when he described the pressures facing an ordinary family: already hit by rising fuel and food costs, such a family could now be forced to come off a fixed-rate mortgage in favour of a more expensive standard rate loan. That simply adds to the problems confronting them and in some cases could lead, sadly, to repossession.
I want to focus my remarks on the second and third legs of the debate title—repossessions and the housing market. We have heard about the impact of the banking crisis on the housing market, and there have been some powerful speeches about those who face repossession and those who cannot afford to make their mortgage payments. I want to focus on some of the less obvious casualties in the housing market, namely those who look to the social housing sector for a solution to their housing difficulties. They are also tied up in this crisis and, paradoxically, their numbers will be swollen by those who find that they are repossessed and those for whom home ownership is no longer a practical possibility.
There has been a fundamental change over the past 25 years in how we fund social housing. If we had had this debate in the early 1980s, the trends that we have been talking about this afternoon would have had no impact at all on social housing, because the Government used to give local authorities powers to borrow, and they built local authority homes. Alternatively, the Government gave grants to housing associations that went on to build housing association properties. So in those days the social housing market was insulated against the broader trends that we have discussed this afternoon; the liquidity problems in the banking sector would have had no resonance in the social housing sector.
That has all changed today, for two principal reasons. First, housing associations now have to borrow significant sums from the banks. Secondly, social housing is now a by-product of market housing. Some 48 per cent, of the Housing Corporation's programme of affordable homes is being delivered through section 106 of the Town and Country Planning Act 1990, on the back of market-led housing. As a result, it is dependent to some extent on a buoyant housing market.
Let me deal with that point first. On a typical new-build site, where a private developer is building market homes, 25 or 30 per cent. of them have to be affordable. That form of provision has many advantages: it provides mixed developments rather than the polarised ones that we had in the 1960s and 1970s, and it also saves the taxpayer a lot of money because the cost of providing social housing is, in effect, borne by the land owner, who makes slightly less of a windfall gain. Using the planning system to generate affordable homes is an enlightened policy—introduced, by the way, by the previous Conservative Government—that has enabled many people to access decent homes far more quickly than under the old system.
However, that use of the planning system also has a downside. Far from being insulated against the broader housing market, social housing is now, crucially, dependent on it. My concern is that the softening of the broader housing market will mean that the target of 3 million new homes, and the social housing component of that target, will not be achieved. If one looks at the annual reports and the share prices of the country's major house builders, and at the comments of the Council of Mortgage Lenders, one finds that the outlook for housing is not good. That means that the outlook for social housing is not good either.
That brings me to the second factor: the reliance by housing associations on private finance to top up the Government grants that they get to deliver the housing programme. The National Housing Federation—the housing associations' trade body—is aware of the considerable challenges faced by housing associations in the current financial climate. Between now and 2011, housing associations will have to borrow £16 billion of private finance to provide 155,000 new affordable homes, on top of the £8 billion of grant. I do not want to be over-dramatic about that, as housing associations are well run, regulated bodies that remain attractive prospects for lenders who want to retreat to quality investment. While there is no sign of lending supply drying up, some lenders are withdrawing from the housing association market and the cost of borrowing is rising.
As a result of the credit crunch there is more competition for finance. Lenders report that they are becoming much more selective, and it is inevitable that individual housing associations—especially those with less attractive risk profiles—will find it difficult to raise the money to sustain the build programme. The Council of Mortgage Lenders has warned the Housing Corporation not to push associations to build "at all costs" amid growing uncertainty in financial markets. Andrew Heywood, deputy head of policy at the CML, has said that, in the short to medium term, there is "no certainty" about the lending capacity of the banks. He added:
"In this situation it would be important for the Housing Corporation to remember its fundamental role as an independent regulator primarily concerned with the viability of housing associations, rather than with attainment of external development targets at all costs."
In response, the Housing Corporation said:
"We are keeping the position of individual associations under close review to ensure that services to existing tenants are not put at risk from development activity."
Several housing associations have been told by lenders, after deals were agreed in broad outline, that the price of the borrowing would go up. Signs that the property market has peaked will make it more difficult for those housing associations that top up their building programme by selling houses to maintain momentum.
This morning, I contacted one of the larger housing associations in my constituency to get a report from the front on how those broader problems are having an impact. I was told that all the funders were being very cautious, with some having stopped lending while others were looking at selling on their mortgage books, or were putting up margins by varying degrees. As a result, the biggest problem would be for housing associations that would be looking to raise more money because their facilities needed reviewing or increasing. The conclusion reached by the housing association that I contacted was that, if the crisis goes on much longer, it will start to impact on the sector's ability to purchase sites and property from the private sector.
My point is that it is not just the private housing sector that is affected. The social housing sector is also affected. If the Government want to hit their 3 million target, they may have to act to maintain their social housing programme. They do not have much headroom on the public finance side, and we have not yet reached the stage where dramatic action is needed, but it would be prudent for Housing Ministers and the Treasury to have some contingency measures up their sleeves. Such measures may be needed to maintain the momentum in the housing programme and if we are to hit the housing target, which I am sure we all want to happen.
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