My Lords, the Government have put in place statutory regulation of mortgages to help to ensure responsible lending and they provide support, through the provision of debt advice, for those experiencing problems. The Government are working with the lending industry to see what more the industry could be doing to support borrowers. Sir James Crosby is leading a working group to consider market-led initiatives to strengthen the mortgage funding market, initially reporting in the summer and presenting proposals at Pre-Budget Report.
My Lords, I thank my noble friend for that Answer. Does he accept that much of the problem has been created by the banks themselves, who were overgreedy and falling over themselves to lend? As the Governor of the Bank of England has said, they have now got into a situation where they are refusing to lend even to good borrowers, thus creating more of a problem. While the Bank of England scheme will certainly help to improve liquidity, can my noble friend tell me how many of the banks and other institutions have now applied under the stringent conditions that apply to those loans and how many are likely to receive such loans? Will the figure be anywhere near the £50 billion that has been spoken of?
My Lords, on the general point, the House and the country are aware of the problems of an unfortunate extension of lending in an unwise way in the recent past. We know the consequences of the credit crunch, but the Government have taken action to relieve aspects of that and the Bank of England is making resources worth £50 billion available to the banks. I cannot give my noble friend any details on the extent of the take-up of those moneys yet. As he will appreciate, the issue is one for the Bank of England, which is carrying out the operation and, as yet, the Treasury does not have figures on the rate of the take-up. I think that the House will appreciate that aspects of the credit crunch are easing somewhat.
My Lords, do the Government recognise that, while all Governments have a responsibility to see that their citizens are decently housed, it does no one any good to encourage or facilitate people who simply cannot afford to become home owners to burden themselves with debt by doing so? In this country, 72 per cent of people are already home owners, which is a very healthy percentage. A fall in property prices could be wholly beneficial in the sense that it would bring houses closer to the living price rather than the speculative price at which they are at the moment.
My Lords, some correction of the market in which prices fall to a limited extent may have that effect, but it is a proper aspiration of our fellow citizens to take out a mortgage on their own homes. By definition, that is taking out a loan. The important thing is that the ability to repay should be carefully assessed and the banks should not lend unwisely. That is a lesson that the banks have assuredly learnt as a consequence of the past six to nine months of financial affairs.
My Lords, the Chancellor said that one of the effects and benefits of the £50 billion Bank of England facility would be that it would lead to lower borrowing costs for home owners and on mortgages. In his recent discussions with the banks, what representations has the Chancellor made to encourage them to ensure that just that happens?
My Lords, we all recognise that the price of borrowing has increased because of the difficulties concerning the credit crunch, but I am pleased to report that the average effective mortgage rate was 5.72 per cent in March, down from 5.9 per cent in December. Those figures are a very long way from the 1990 crash with regard to mortgages and the level of repossession that took place because people could not afford to keep up their mortgage repayments. Although there is absolutely no room for complacency and none of us should underestimate the pressures on family budgets at present, effective mortgage rates do not seem to be escalating wildly.
My Lords, bearing in mind that the number of repossessions is likely to rise to about 50,000 a year, or 1,000 families a week, with all the homelessness that goes with that, will the Minister prevail on his colleagues to improve the safety net that helps people through a difficult patch? In 1995, the period after which ISMI, income support for mortgage interest, kicked in was reduced from nine months to just two months. Could that be reconsidered, as the level of repossessions seems likely to rise a good deal further in the months ahead?
My Lords, of course the noble Lord is right to anticipate some increase in the rate of repossessions. That is why the Chancellor met the Council of Mortgage Lenders and others to press on them the necessity of ensuring that, as far as possible, measures are taken to ease the pressures on households, perhaps by delaying interest rate increases over time or by spreading the period over which repayment has to be made. I hear what the noble Lord says about the safety scheme, which is a limited scheme that applies to those who are out of work. All that will be under consideration.
My Lords, last year, the Government injected £25 billion into Northern Rock, more than has been put into any other company or organisation anywhere in the world by a Government, to avoid financial meltdown. Further, the Government have helped by a further £50 billion the whole of the banking community, yet, as we are seeing, the banks are not passing on mortgage cuts to the borrowers. Unless there is something wrong with my maths, the fall from 5.9 per cent to 5.72 per cent means that the average reduction in mortgage rates is about a quarter of a per cent at a time. The banks are not passing on the cuts. What can the Government do to encourage the banks to pass on those benefits?
My Lords, the noble Lord is of course right to say that the Government took salutary action in order to protect the financial system from what could have been catastrophic meltdown, with consequences for everyone. On passing on the advantages derived from the increase in capital made available, let me say that these are still early days. The banks have real problems with some of the debts that they have already incurred, but the Government will continue to press on the banks the necessity of keeping mortgage interest rates as low as possible.