To ask Her Majestys Government whether they will ensure that mortgages for residential property are limited to a percentage of the value of the property and to a multiple of the applicants earnings.
The Financial Services Secretary to the Treasury (Lord Myners): My Lords, in 2004 the Government extended the scope of Financial Services Authority regulation to residential mortgages. The Government have asked the FSA to look at how new mortgages should be treated where the value of the loan exceeds the value of the property. The FSA has stated that it will publish a paper in September on mortgage regulation which will consider product regulation including maximum loan-to-value and loan-to-income caps.
Lord Dubs: My Lords, I am grateful to my noble friend. When I bought my house many years ago my mortgage was 70 per cent of the value and two and half times my salary, with my employer certifying that that was the case. Does my noble friend agree that if that had stayed the practice of the mortgage lenders, we would not have had to face most of the difficulties that we now face?
Lord Myners: My Lords, I agree that building societies and banks that advanced high loan-to-value ratio loans or high loan-to-income ratio loans have experienced above average default ratios. However, there are also other areas of difficulty around self-certified loans, the acquisition of mortgage books of loans and the buy-to-let area. Banks will need to learn a number of lessons in how they approach the financing of home ownership.
Baroness Oppenheim-Barnes: My Lords, does the noble Lord agree that one of the main problems with sub-prime mortgages in the United States was the fact that the valuations themselves were fraudulent? Even in this country brokers have been known to press mortgages on to people who are in receipt of unemployment benefit.
Lord Myners: My Lords, I have read reports about valuation approaches in the United States of America. Some of those issues may well have occurred here and they are receiving the attention of the regulatory and prosecuting authorities.
Lord Barnett: My Lords, my noble friend told us some time ago that even the banks we control will be treated on an arms-length basis. How does that fit in with what he is telling us now? For example, the banks were lending on commercial terms to unsuitable borrowers when house prices were very high. Now they are apparently going to be lending 90 per cent or even 100 per cent on houses whose prices are quite a bit lower. But presumably those loans will go only to suitable borrowers. Are the Government going to intervene?
Lord Myners: My Lords, the question of suitability, regardless of whether it applies to banks in which the Government have a temporary shareholding or to other banks, must be a matter for determination by the boards and management of those banks together with the regulators. The FSAs mortgage-regulation regime requires firms to lend responsibly; to satisfy themselves that borrowers have the ability to repay their mortgage; and to ensure that borrowers have full information about the products they are considering purchasing. That applies to banks regardless of whether the Government have a shareholding.
Lord Newby: My Lords, I am sure that the whole nation will be grateful that the FSA will produce a paper on this issue in September. However, does that not reflect an alarming lack of urgency? Can the Minister give any good reason why new mortgages should amount to more than 85 per cent of the value of the house? If he cannot, will he instruct the FSA to incorporate that into its guidance before September?
Lord Myners: My Lords, the noble Lord, Lord Newby, raises a number of questions. I think that the lack of urgency is due to some extent to the fact that this particular horse has bolted. The proportion of loans being extended for more than 90 per cent of the value is now very low and a very high proportion of those loans are to borrowers with existing loans who are rolling the loans over or taking them from one mortgage provider to another. To some extent there is an enforced demand in place. That is an example of where the value of the property is quite close to the loan value but the loan is nevertheless required as a force of necessity.
There are other circumstances that would discourage one from being prescriptive. For instance, a loan-to-value ratio could be high but there could be a third-party guarantee; or there could be a low multiple of earnings with a high degree of confidence and conviction about those earnings. So I think that we need to be slightly careful about broad-brush generalisations. However, market practice has certainly seen a significant reduction in the availability of high loan-to-value mortgages.
Lord Myners: My Lords, the basic rules and principles of sound lending should apply to housing associations, councils, building societies and banks. If they do not,
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Baroness Noakes: My Lords, will controlling mortgage lending in the way suggested by the noble Lord, Lord Dubs, stop households overgearing or will it simply drive them to more costly and more onerous forms of financing?
Lord Myners: My Lords, I think that it will be a force for more prudent behaviour. The sources of non-institutionalised lending really are quite limited now. For instance, the fact that banks are no longer securitising loans and selling them on, but rather retaining ownership of a higher proportion of their loans, with the responsibility that goes with that, is a force for more prudent and conservative lending.
Lord Myners: My Lords, first, it is important to note that we are now in an environment of very low interest rates. Those low interest rates have been passed on to mortgage borrowers, so the cost of debt service has declined. However, unfortunately, there are people who are experiencing difficulties. That is why I am delighted to see that, this morning, my right honourable friend the Minister for Housing introduced and announced the details of the homeowner mortgage support scheme, with very substantial support from our major lenders. It will do much to ease the problems and difficulties of those who find themselves with a temporary difficulty in servicing their mortgage, although that must always be subject to independent advice. We do not want to see people accumulating even larger liabilities, which they will have even more difficulty in servicing in the future.
The Minister of State, Department for Transport (Lord Adonis): My Lords, the Government have set up a new company, High Speed Two, to develop the case for high-speed services between London and Scotland.
As a first stage, High Speed Two will report by the end of the year with a proposed route from London to the West Midlands, setting out any necessary options. It will also consider the potential for the line to extend to serve the north of England and Scotland.
The Lord Bishop of Carlisle: My Lords, I thank the Minister for his Answer. Does he agree that at this time of growing unemployment, and to further targets for reducing carbon emissions and to improve our national infrastructure for growth after the recession, it is a highly opportune time to build the high-speed rail link? Does he further agree that because of the freight trains and the curves on the existing line north of Crewe, only a dedicated line will meet the need to reach the north and Glasgow quickly? Does he agree that, by comparison with other leading European nations, our progress with high-speed rail is woeful?
Lord Adonis: My Lords, I understand that the right reverend Prelate retires from the See of Carlisle and the House at the end of the month. I think that I speak on behalf of the whole House in saying that he leaves with our very best wishes. I have greatly appreciated my conversations with him about transport issues, on which he is a great expert. I agree with almost all his questions, but I cannot speak for my right honourable friend the Chancellor in terms of commitments we are able to make in the future. However, I note with strong approval that the Synod of the Church of England recently passed the following resolution:
This Synod urges Her Majestys Government ... to sustain employment opportunities, further environmental targets and strengthen future economic and social development by implementing the planning and development of a high-speed rail line from London to the North-West and Scotland.
Lord Faulkner of Worcester: My Lords, is my noble friend aware that his decision to spend the whole of last week travelling the length and breadth of Britains railway system without a bag carrier or press officer in attendance and armed only with a standard class rail rover ticket was immensely appreciated by everybody who cares about our railways? Having spoken to so many people during the week that he was travelling, was his impression of the need for new investment in the railway in terms of electrification and the high-speed rail line enhanced as a result of that experience?
Lord Adonis: My Lords, the highlight of my week was meeting my noble friend on the Swanage railway, where, for the first time in my life, I was on the footplate of a steam engine. That was immensely exciting for me but I think is a common occurrence for my noble friend. I, of course, embrace warmly the need for further investment in the railways and further investment is being put in place. As regards models for the future, when I finished my national tour at the York Railway Museum I was fortunate to arrive just as the Tornado was arriving on one of its trips out of London. There were vast crowds to see it. However, my particular concern was to have my picture taken next to the Japanese bullet train, which is a recent addition to the collection at the York Railway Museum, and which I have to say I see as rather more of a model for the future.
Lord Walton of Detchant: My Lords, in the light of the noble Lords comments on the crucial importance of the high-speed rail link to the north-west, will he
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Lord Adonis: My Lords, I will take up the case of the tuna sandwich and the tomato juice. However, I did not have the opportunity to enjoy the at-seat dining facilities on the East Coast Main Line because I was in the cab. Therefore, I had a better view of what was going on, particularly the issue which I know will be of concern to the noble Lord, which is that the East Coast Main Line north of Darlington has a much lower line speed than south of Darlington, where it is 125 miles an hour for a good part of the way. A key issue as we develop high-speed services is that we can get fast running all the way to Scotland. Therefore, I had to forgo the sandwich, steak and other delicacies on offer on the East Coast Main Line in order to get some practical experience.
The Duke of Montrose: My Lords, following the supplementary question of the right reverend Prelate, my interest is that my carbon footprint created in getting to Westminster would be 70 times less if we had a high-speed rail line from Scotland. Given that the Atkins report has costed the Governments proposal at around £31 billion, does the Minister have an updated figure on the possible benefit to the economy?
Lord Adonis: My Lords, I passed through Montrose on my journey and thought of the noble Duke, who I imagined owned everything I could see. I do not have an updated figure, but I am in the market if anyone wishes to make a contribution.
Lord Inglewood: My Lords, in his replies the Minister has been looking forward, rather apocalyptically, to the construction of new railway lines. Would he not agree that it is important in the current world that existing rail lines run as swiftly as possible, and that every effort is made to achieve that? I declare an interest as someone who was an hour late on the north-west main line yesterday.
Lord Adonis: My Lords, I absolutely agree with the noble Lord, which is precisely why I spent a week travelling on the railways to see what is in fact going on. Whatever we manage to achieve in terms of high-speed rail over the coming yearsand I see this as an important priority for the countrythe great majority of travellers will be travelling on the existing railway, and in particular those who commute in and out of our major cities want to see more carriages, the best possible value and the fastest journey times that we can offer them.
Lord Bradshaw: My Lords, does the Minister agree that, although the High Speed Two line will be very welcome, there is a very urgent need, as has been stated, to upgrade services on the GNER, London and north-east lines? Also, will he give attention to how much use can be made of the Midland Mainline,
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Lord Adonis: My Lords, as the noble Lord rightly says, we are looking in detail at the case for electrifying the Midland Mainline for precisely the reasons that he gives. In terms of improving the East Coast Main Line, a programme of work is taking place in the next five years that will remove bottlenecks and make it possible to have higher running speeds over some parts of it. As the noble Lord knows better than anyone in the House, there are a number of constraints on the East Coast Main Line north of Darlington, where track alignments make it very difficult to get much higher running speeds.
The Financial Services Secretary to the Treasury (Lord Myners): My Lords, the Chancellor of the Exchequer will make a Statement on the 2009 Budget at 12.30 pm tomorrow. As normal, the Budget will include forecasts for the UK and world economies, incorporating all relevant factors.
The Earl of Caithness: My Lords, given the complete mess that the Treasury made of last years forecastsit expected a budget deficit of 2 per cent of GDP when it is more likely to be 10 per cent, and expected economic growth of at least 2.5 per cent when in fact it is likely to be minus 3.5 per centwould the Minister agree with the OECD that half of our problems were structural and related to government policy and nothing to do with the worldwide recession? What are the Government going to do about that?
Lord Myners: My Lords, my right honourable friend the Chancellor of the Exchequer will give a detailed analysis of the situation in the world and domestic economies when he makes his Budget presentation tomorrow. We are in the midst of a truly extraordinary global recession. For the first time in 60 years, the IMF has forecast a net reduction in added value for global economic activity. This problem is not confined to one country; it is a global problem. That is why the Prime Minister, in his chairmanship of the G20, led a global solution.
Lord Lea of Crondall: My Lords, on the basis that the noble Earl is looking for a statistical answer to his Question, would my noble friend not agree that a more reasonable estimate of blame would be 10 per cent
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Lord Myners: My Lords, there is a spurious accuracy to my noble friends data. However, he has put his finger on the fact that the problem that we have in the global economy at the moment is inextricably linked to the contraction of credit as a consequence of the difficulties that the worlds major banks have found themselves in. That is why this problem is not limited to the United Kingdom, but is global. Restoring the banks ability to lend through recapitalisation, managing their damaged assets, strengthening their funding and making liquidity available is at the heart of the programme that not only have we followed in this country but has been followed by other countries which have seen the wisdom of the action that we have taken.
Lord Lawson of Blaby: My Lords, will the Minister explain to simple-minded folk like me how it is that when the British economy was expanding, at a time when the whole world economy was expanding, that was entirely to do with the success of the British Government; but now that the British economy is contracting rather faster than most of the world in a contracting world economy, it is nothing to do with us but is entirely to do with the world?
Lord Myners: My Lords, the noble Lord, Lord Lawson, knows that I am new to the world of politics, so it is perhaps harder for me to find an easy answer to that question than it would be for many others who have come to this House from the other place. But let us look at the facts. Over the 10 years to 1996, GDP per capita in the UK was the lowest in the G7. Over the following 10 years, it was the second highest in the G7. Since 1997, which was an important year, as no doubt the noble Lord remembers, UK real GDP per capita has increased by more than any other G7 economy. That was a tribute to the masterful management of the economy by my right honourable friend who was the Chancellor in those days, who is now our Prime Minister.
Lord Newby: My Lords, I am sure that everyone in the House accepts that there is a global recession. Does the Minister accept that a number of contributory factors are home-grown, such as the lax regulation of banks and building societies over a number of years, the ratcheting up of budget deficits during the boom and the Government extolling ever higher and excessive pay levels for top corporate executives? Does he further accept that if the Government were to accept even a small proportion of the responsibility for some of these things, they might be in a better position to argue convincingly for recovery?
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