After the Second World War low-interest (3 per cent) housing loans were provided for ex-servicemen through the State Advances Corporation. Both they and civilians benefited from the suspensory loans introduced in 1951 and, later, from more liberal loan limits. Then followed two changes in policy which greatly increased Government lending in a short time. From February 1958 civilians on small incomes were granted 3 per cent loans at a time when the standard State Advances interest rate was 4¾ per cent and the prevailing rate charged by private institutions was 5½ per cent. These loans became much easier to obtain in April 1959, when it became possible for parents to capitalise the family benefit (up to £1,000) to assist in financing a house, making additions, or, in some cases, to reduce or pay off a mortgage.

Many people with families who had been unable to save enough to bridge the gap between the cost of a house and the loan limit were able to obtain a house and slow savers no longer had to wait. On the other hand, the Government was finding up to 100 per cent of the cost and some people of limited financial experience were at short notice entering into large commitments of a new kind and at the same time forgoing the receipt of a regular benefit.

In three years not only did the annual amount of additional finance drawn by State Advances from Treasury more than double but a large backlog of unexercised loan authorisations was also created. This kept drawings at a high level, after the peak of capitalisation had passed. When drawings did fall (in 1963–64), the pattern of lending changed and lifted them again in the following year. A resumption of lending on existing houses and on sharp acceleration in farm lending to increase exports became Government policy. In the late sixties a further upsurge can be expected in lending on new houses required by the young married people who were born just after the war. By that time, too, the change in policy on farm lending should be showing its full effect, with possibly a greater activity in Government lending for urban renewal.

Cheap loans on new houses, by stimulating demand, have led to higher costs of sections and houses. They have also had effects on local authorities. Combined with the policy from the mid-fifties to the mid-sixties of restricting State Advances housing loans to mainly new houses, 3 per cent lending led to a sudden rash of new houses on the periphery of towns, with consequential effects on municipal services and costs, transport systems, and on values in the older residential areas. It may take some years for the recent change in policy on existing houses to revive the inner areas.

The virtual monopoly of State Advances in lending to the low-moderate income group would normally have released more institutional and private funds for lending to people on higher incomes and to farmers, but it so happened that insurance companies turned at that time to large-scale investment in commerce and industry. At the same time the prevailing rate of interest, excluding State Advances, moved up to 6½ per cent, further intensifying the difference in treatment accorded the two income groups.