asked the Minister for Industry and Commerce the reasons for his approval of the increased interest rate levied on borrowers by building societies.
123.
Ceisteanna—Questions. Oral Answers. - Building Society Interest Rates.
122.
asked the Minister for Industry and Commerce if he will refuse to allow building societies to raise the rates of interest charged on loans already made for house building; and if he is aware of the protests made in regard to this matter.
124.
asked the Minister for Industry and Commerce whether he proposes to take any action on the decision of the building societies to increase their interest rates.
With your permission, a Cheann Comhairle, I propose to take Questions Nos. 122, 123 and 124 together.
I would refer the Deputies to the announcement made in this matter on 28th September. As stated then, I have had an independent examination carried out of the issues involved in determining these interest rates and I have given special consideration to the question of whether it was reasonable that increased rates should apply to old loans.
I am satisfied, in the light of the results of this examination, that I could not press the societies to defer any longer the proposed increases.
I am fully conscious of the hardship caused to borrowers by the increase. I have, therefore, made it clear to the societies that I expect a reduction in the rate within a reasonable time and I have put before them certain suggestions as to how this might be achieved. These suggestions are now being considered by the societies.
In view of the fact that this increased interest rate represents a very considerable added hardship upon people who are already meeting very high existing costs in the matter of house purchase, does the Minister not consider that there is a responsibility upon him to state publicly the considerations which have prompted him to sanction this action by the building societies? Further, is the Minister aware that, up to now, at any rate, the sufferes concerned, that is, the people who will have to meet the bill, have not been given any adequate explanation as to why he took this inexplicable decision which is what it appears to the average man in the street?
I cannot accept the Deputy's contention that the reasons which compelled me to take this decision have not been made public. They have been made quite clear. In a nutshell, what it amounts to is, if I did not make this decision, young married couples now purchasing houses at prices which are very much higher than those purchased by people some years ago would have not alone to pay for their own loans but would have to pay additionally to subsidise the people who got loans some years ago at lower purchase prices. This is what it amounts to and what the effect would be.
Surely it is related to the fact that our building industry has been going through a period of excessive house prices? Surely the answer to the problem which the Minister has in the matter of very high house prices is that he should employ such powers as he has already within his reach to prevent the exploitation of these house purchasers by the enormous increase in house prices which has undoubtedly occurred, rather than by evading the issue in this way and making the people who are less capable, in financial terms, pay the bill? Surely this is a complete injustice?
The increase in the price of houses simply makes the position more difficult but the question here relates to the interest rates payable by people borrowing money to purchase houses. As the Deputy knows, building societies operate on the basis that they must pay the going rate at any given time on all the money which they have loaned, whereas they have loaned money over the years at rates considerably lower than they have to pay at the moment.
Would the Minister say if in any of his suggestions to the building societies, he made any reference to the possibility of Government borrowing being reduced?
No.
Are we to take it that the Minister subscribes to the view that people who committed themselves to the purchase of houses and received building society loans in 1964, 1965 or 1966 are expected to subsidise people who want to purchase houses in 1967?
No; that is not so. What the Deputy seems to want is that people buying now should be asked to subsidise those who got loans at lower rates.
The Minister suggested that people who bought houses in 1965 or 1966 and entered into the many other commitments associated with the purchase of houses, such as furnishing etc., should be required to pay a subsidy to other people.
No; there is no question of a subsidy. It is a question of contract. These people have signed contracts which allow for this situation where they might have to pay increased rates of interest and such circumstances have arisen. The Deputy is also aware that I have made it clear that I am well aware that even though this is a contract, it does create considerable hardship. I am well aware of this fact. In the light of that, I have made suggestions to the building societies to try to bring about a reduction in interest rates as soon as possible, but one cannot escape the fact that when one is borrowing from a building society, one is borrowing from an institution which is obliged to pay whatever is the current rate of interest on money they borrow and if people got loans at a lower rate some years ago, they may be called on to pay more. Otherwise, they are getting money at a low rate of interest and the building society would be unable to finance loans if they cannot get the increased rate of interest because they have to pay it to their investors.
Is the Minister saying——
Is the Deputy asking a question?
Yes; I want clarification on this. It is a matter of vital public importance.
It is growing into a debate, which is not in order.
I assure you, Sir, that I am not trying to make a debate of it today; we will have that again. I want to ask the Minister, if the Chair will permit it, if he is saying, as it seems to me he is in effect, that the price at which people bought houses some years ago was a low price and the present price is a fair price, that the people who bought houses some years ago should have no complaints if they are called upon to help people to pay the present price of houses? Is he saying that?
He is not, as the Deputy knows.
I do not know. That is what the answer sounds like.
This is developing into an argument.
The Minister was putting up a very feeble defence for the house racketeers and nothing else.
I am calling Question No. 125.
Surely the position is that the price of houses has nothing to do with the rate of interest? I am putting this to the Minister: does he agree that the difficulties are caused, in the main, by the high interest rates which are attracted by Government stock and the building societies have to try to keep pace with that? If the Government, in order to get money, issue loans at a high rate of interest, it must eventually cause the kind of difficulties that have been caused to the building societies at present.
The Deputy will be aware that I have already said the price of houses is aggravating the situation. He is also aware that the rate of interest payable on, say, Government loans, or anything else like that, is largely dictated by the international price of money.
We will take this matter on the Adjournment next week, please God.