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Lord Graham of Edmonton: My Lords, I rise very briefly and unexpectedly. I did not intend to make a contribution, but, in view of the kind words of the noble Earl, Lord Russell, in the absence of my noble friend Lady Hollis, I should like to say that I appreciated his remarks. As the House well knows, the case that was made so well by the noble Earl would have been made equally well by my noble friend. It is sufficient to say that in another place my parliamentary colleague, Keith Bradley, twice sought to do precisely what this parliamentary initiative seeks to do, but to no avail. I am grateful for the remarks of the noble Earl, Lord Russell. He covered all the points. We on these Benches fully support everything that he said. That is all that I intend to say this evening.

The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish): My Lords, I did think, as the noble Earl, Lord Russell, said, that I was about to get away with a free evening this evening. However, I am happy to respond to the points that the noble Earl made on this issue and, so to speak, pick up the baton. I hope that it does not encourage the noble Earl too much when I say that I was almost beginning to get withdrawal symptoms over the past three months without having to fence with him across the Dispatch Box.

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I should like to start by putting these measures in context. It has often been said that these measures for income support mortgage interest will add to the burdens of home owners—as if the current system provides a panacea for home owners in difficulty. Indeed, to a certain extent in part of his argument the noble Earl seemed to move in that direction.

This is simply not the case. I make no apology for repeating a statistic that will be very familiar and well worn to those noble Lords who have followed this debate. The vast majority of home owners—70 per cent. in fact—would receive no help from income support if they found themselves unable to work tomorrow. Indeed, 150,000 unemployed home owners currently do not qualify for income support.

As to the noble Earl's remarks in regard to my right honourable friend the Prime Minister and his desire to see more and more people do what they all want to do—namely, own their own homes—the noble Earl's "either/or" trap was, as I discovered, a clever one—into which I suggest neither I nor my right honourable friend the Prime Minister has fallen. It is not a matter of "either/or". As I say, 70 per cent. of home owners would not receive income support; and 150,000 home owners currently do not qualify. They do not qualify for a number of reasons. Help is not available to those with a working partner, and 62 per cent. of mortgages are based on two or more incomes. It is not available to those with modest savings or redundancy payments, and it is not available to those with a modest income.

So, income support mortgage interest is a very uneven safety net, contrary to the impression given by the noble Earl—and, to be fair to the noble Earl, the impression given by many people who campaigned against this change of policy since we announced it. Therefore, despite failing to help so many people it is a very expensive arrangement, with the burden on the taxpayer rising from £31 million in 1979 to around £1 billion today.

The main change that we intend to make is that for new borrowers—namely, those who take on new housing commitments after 1st October 1995—the waiting period will be nine months (perhaps more legalistically expressed, 39 weeks) after which the full eligible housing costs will be paid. For existing borrowers—those who took on their housing commitments prior to 2nd October 1995—the waiting period will be two months (eight weeks) followed by a further period of four months (18 weeks) when 50 per cent. of the mortgage will be paid. This puts existing borrowers on a par with those on private mortgage insurance which usually has a two or three-month waiting period.

Once housing costs become payable they will be paid at a standard rate which is set as close as possible to the average building society rate. I know that the noble Earl did not mention this aspect, but we hope that by the use of the standard rate many of the difficulties and bureaucracies, and indeed errors that are made, in the current system will be ironed out. Existing claimants and pensioners have been protected. During the consultation on these measures we had extensive

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discussions with all those concerned and we considered carefully the report of the Social Security Advisory Committee.

Essentially, we believe that lenders and borrowers should take back responsibility for the first few weeks of difficulty. Before we came forward with these proposals many borrowers were already taking out insurance. The Association of British Insurers says that one in three new borrowers were taking out insurance—that is, before this proposal even came across the horizon—and the Abbey National confirmed this—40 per cent. of its new borrowers were taking out insurance. That rather knocks on the head the argument that the noble Earl put forward on anecdotal evidence; namely, that if you ask for insurance, the company immediately thinks that you must need it, and therefore it will not give it to you. Quite clearly, on the evidence that I have presented, very many people were already taking out policies, and successfully, before the proposals we made came over the horizon.

However, following discussions with lenders and insurers a number of important easements have been introduced. The noble Earl mentioned some. I hope he will accept that we recognise that at present there are some groups whom insurers cannot cover. They are in particular: carers; those with pre-existing medical conditions or HIV related illnesses; remand prisoners; and deserted partners who have care of children. New borrowers in these groups will be treated as existing borrowers. We have also clarified the definition of new borrowing to avoid any perverse effects. We have introduced a 26-week linking period where re-qualification periods for insurance may have left borrowers uncovered. We have introduced special rules to "start the clock" on the restricted period for those who are not entitled to income support because of excess income or capital. So they will not be left having to pay for some time before the clock starts to tick—when, for example, they first sign on as unemployed.

Once housing costs become payable by the Department of Social Security Benefits Agency, they will be paid direct to lenders participating in the mortgage direct scheme. That will help control arrears by ensuring that benefit paid for housing costs is used for that purpose.

The measures we set out in the regulations provide the right balance between benefit and insurance provision and ensure that the two mesh together to provide more comprehensive cover for borrowers. Importantly, the introduction of those measures has encouraged all borrowers and their lenders to think about how they might cope when times get hard. Your Lordships may recall the point I made that 70 per cent. of borrowers would not be covered and will see the importance of the additional spread of cover that has come about because we made the decisions we did.

The question of reasonable repairs, which the noble Earl raised with me, is a difficult issue. People take out second mortgages and sometimes a new mortgage to repair, improve or expand their house. Some people do it because they like where they live but want a bit more room and therefore take out another mortgage; other people do it because the house is not properly habitable

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and they wish to make it habitable. That is a problem for the Government. Clearly it would not be right if one decided to take out a new mortgage in order to give one's wife the kind of kitchen one sees in classy magazines and then turned to the taxpayer and said, "Will you be prepared to pick up the tab for this lovely kitchen?" There is a world of difference between that situation and another situation which the noble Earl is perhaps about to put to me.

Earl Russell: My Lords, I entirely accept what the Minister says. My point concerned the method of drafting legislation. It owed its ideological origins to the noble Lord, Lord Renton.

Lord Mackay of Ardbrecknish: My Lords, I appreciate the point the noble Lord is making as to how one drafts legislation in order to tighten up on these issues and not allow the example I was making through the system. As is often the trouble with a general provision, when it said, "anything else reasonable", the blunt fact is that that was being interpreted too widely in the old scheme and we had to think of ways, by giving examples, to list the kinds of facility which would fall to be considered for help and, if they are not listed, the kinds of facility which would not. We tried to list the facilities which may be required to make a house habitable; to meet the needs of the disabled and, for example, to cover the provision of separate sleeping arrangements for children of different sexes aged 10 or over. We hoped that by listing the examples the position would be made clear to everybody, including the officials of the Benefit Agency who must administer the policy.

Perhaps I can turn to the points relating to insurance. The measures we have taken are founded on the belief that the insurance industry is able to rise to the challenge of providing effective, quality products for those borrowers who want them and that lenders want to ensure that all their borrowers are in a position to cope if they are unable to work. Lenders and insurers have already responded positively to those measures. A whole range of new products are emerging, many at substantially reduced rates.

Direct sale products are emerging, cutting out the middle man and cutting costs—one is even being offered by the Daily Mirror. Pick and mix products have been developed offering separate cover for redundancy, accident and sickness. The Skipton, Market Harborough and Hinkley and Rugby building societies are all offering the redundancy element free with top-up insurance as low as £2 per £100. Other lenders are cutting the cost of their comprehensive cover; the Woolwich now offers cover from £3.50 per £100. Lenders are encouraging take-up by existing borrowers to whom it was previously unavailable.

To return to the point I made, because of what we are doing the proposition that people should be insured and the availability of reasonably priced cover will help those people who would never be helped by the income support system if they became unemployed.

Other innovative products are emerging—one from the Halifax combining help to borrowers both in and out of work. The industry as a whole has been acting to

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ensure that the quality of insurance improves. We have worked with the ABI to help it produce its statement of best practice for mortgage protection policies. That is important as it addresses many of the issues of concern about the interface between benefit and insurance, including the treatment of groups such as those mentioned by the noble Earl, the self-employed and contract workers. We will continue to work closely with insurers and lenders now that the changes have been introduced to ensure that the interaction between state and private provision works to the benefit of all concerned.

The noble Earl made some points in relation to home ownership. Home ownership has rarely been as affordable as it is today. The taxpayer still funds MIRAS to the tune of £2.8 billion a year and the average borrower is still £140 better off than in 1990 due to the fall in interest rates. Unemployment is falling steadily and the figures today provide further encouragement. People are becoming used to the idea that we live with continual low inflation; many people had forgotten that low inflation was possible.

The measures we have introduced will lead to the development of better protection for all home owners and will provide confidence to the people who need it. Many critics claim that they will result in an increase in arrears and repossessions. I do not accept that they will. Research has shown that 70 per cent. of those repossessed were not in receipt of income support. The reasons why people end up being repossessed are complex, but around two-thirds of those who had their homes compulsorily repossessed had more than one set of arrears. Those figures were supported in comments by a representative of the Woolwich Building Society at a recent Council of Mortgage Lenders seminar. It was said that only 19 per cent. of the societies' repossessions in July were due to unemployment or business failure, but a staggering 52 per cent. were due to financial mismanagement. With multiple arrears and in the majority of cases no recourse to state benefit, it is perhaps not surprising that some borrowers end up losing their homes. Better protection for all home owners through private provision can only improve that situation.

I wonder about the alternatives. Is the status quo which leaves the majority of home owners without help perfectly acceptable to everyone? I remind your Lordships again of the statistics on repossession which prove that it was not a viable option to stay exactly where we were. Seventy per cent. of those repossessed were not in receipt of income support and the help available. There is a proposal that there should be a mortgage benefit system which would be available to all if people fell on hard times. But the cost of that has never been properly outlined. Any work that we have done on those costs shows them to be considerably in excess of the £1 billion we spend already; they range between £3 billion and £6 billion, depending on how one defines it.

My final point on income support mortgage interest is an important one and one which is all too often forgotten. While we believe it is right that all home owners should make some provision for short periods

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when they are unable to meet their mortgage commitments—all the evidence indicates that they will obtain that cover—the Government are not withdrawing from the provision of income support mortgage interest. We remain the insurer of last resort for those in long-term need. But by introducing these measures we have stimulated the development of a comprehensive mortgage protection insurance market, ensuring a better future for all home owners. All borrowers will benefit from the new arrangements, in particular the majority who were never covered by income support mortgage interest. Interest in insuring has increased and, as I predicted at this Dispatch Box earlier in the year, the costs of insuring have decreased dramatically. I commend the regulations to the House.

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