asked the Minister for Industry and Commerce if the building societies have yet decided to lower their mortgage rates.
54.
Ceisteanna — Questions. Oral Answers. - Building Societies Mortgage Rates.
53.
asked the Minister for Industry and Commerce whether he is aware of the possibility of an increase in the rate of interest charged on mortgages by building societies in 1969; and whether he intends to have any consultation with the building societies to prevent this occurring.
With your permission, a Cheann Comhairle, I propose to take Questions Nos. 53 and 54 together.
Consultations have been taking place between my Department and the building societies with the object of keeping mortgage interest rates down. It will take some time, however, to ascertain the effects on the flow of funds to the societies — and consequently on their lending rates — of the recent and pending changes in the interest rates on certain competing forms of investment
I apologise if I am asking a difficult question. Is it a fact that, when this increase in mortgage rates occurred, the increase applied retrospectively and persons who had repaid to some building societies found that, notwithstanding their repayments of principal and interest, they owed more than they did in the beginning? This is a serious matter.
It could happen with people who had borrowed a reasonably short time previously that, with the increase in interest rates, they might owe more than they owed when they began.
The relevant period of time in the particular case referred to me is two and a half years.
Was this not just because no interest was paid at first on the mortgage in that case?
That I agree would be so in the ordinary sinking fund complication but it could not be possible unless retrospection was applied when the interest rate was increased and a person could end up owing more money than he did at first.
It would not be correct to say that retrospection was applied in the sense that an additional interest rate was being charged on the money already paid.
Could the Minister say why, when a person borrows from a local authority and knows that he will pay a fixed rate of interest from the day on which he borrows the money until the day he clears his commitment the interest rate of a man who borrows from a building society is likely to fluctuate every time the interest rate in the banks fluctuate? Could the Minister not so arrange it that there would be a fixed rate of interest when borrowing from building societies?
It is because the money which funds the local authority loans is money borrowed at a fixed rate of interest and, therefore, can be lent out at a fixed rate, but in the case of building societies they obtain investments from people from time to time and unless they pay the going rate people will not invest with them and will withdraw their money and put it into something that is yielding a higher rate. Therefore, they must pay the going rate.
Surely the Minister is wrong in asserting that an increase in the interest rates on something already lent means that extra profits are being provided from their older borrowers as it were to finance new borrowers——
This is developing into a debate.
Can the Minister say when a decision will be made in regard to when the mortgage rates will be reduced? Can he also state if he has a reply to the questions about the misuse of funds by building societies for projects other than housing which he promised to investigate?
The answer to the first part of the question is that I cannot say positively that there will be a reduction. I would not anticipate being in a position to seek a definitive answer to that earlier than two or three months. That would be the earliest possible date for the reason that some interest rates on investments which are competing with building societies have gone up and some have gone down and, therefore, it is too early to estimate what the effects on the flow to the building societies will be.
In regard to the second part of the question the position, as the Deputy will recall, was that there were two matters to which I referred. One was that one of the big five of the building societies appeared to be lending a higher proportion of its funds than others for purposes other than house building. As far as I can remember offhand, I think it was about five per cent; it was a small percentage but still relatively large. That has been taken up with the society and the matter is being pursued. The other question was raised by Deputy Dillon in regard to a small society which was lending up to 50 per cent of its investment for purposes other than housing. This is still being investigated and I still have not got the final position.
The Minister will appreciate that the bank rate has been down for quite a while and a promise was given that he would look into the matter.
I had meetings in my Department from time to time with the building societies, including one yesterday, but the Deputy will appreciate that in addition to the interest rate on deposits in the banks going down the interest rates in the trustee savings banks have gone up.
Yes, but not above the building societies.
No, but in relation to what they were. Therefore, I cannot be certain with any degree of accuracy what the overall effect on the building societies will be.
Will the Minister promise to keep us informed?
When the opportunity arises.