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Dáil Éireann debate -
Wednesday, 26 Mar 1969

Vol. 239 No. 7

Ceisteanna—Questions. Oral Answers. - Housing Loans Interest Rates.


asked the Minister for Local Government if he intends to take any steps to safeguard the property rights of house purchasers whose interest rates on building society mortgages are likely to be increased.


asked the Minister for Local Government if he intends to take any steps to safeguard the property rights of house purchasers whose interest rates on building society mortgages are likely to be increased.


asked the Minister for Local Government whether he proposes to take any action on the recently announced increase in interest rates chargeable to borrowers from the building societies and the Local Loans Fund; and if he will make a statement on the matter.


asked the Minister for Local Government if he will make a statement on the present situation of house mortgage loan interest payable to building societies.


asked the Minister for Local Government if he will make a full statement on the financing of loans under the SDA Acts and from local authorities.


asked the Minister for Local Government if he will take immediate steps to relieve the financial burden which will be imposed on future house purchase under SDA Acts and from local authorities caused by the severe increase in interest rates.


asked the Minister for Local Government whether in view of the Government's attitude on the need for incomes restraint any consideration will be given to avoiding an increased rate of interest on local authority loans, in view of the disastrous effect such increases must have on the main recipients of loans, those earning under £1,200 per annum, who wish to buy their own homes.


asked the Minister for Local Government whether the Government's present view on the need for incomes restraint will necessitate any action on their part in consultation with the building societies to avoid any increase in their mortgage rates.


asked the Minister for Local Government the reasons for the increase in mortgage rates by building societies; if he has been consulted; if he has ascertained where the building societies are investing their profits; and whether he has taken any steps to prevent this grave increase.

With your permission, a Cheann Comhairle, I propose to take Questions Nos. 21 to 29 together.

In the seven years up to and including 1968 building societies lent about £50,000,00 to help people to buy or build their houses. Last year they lent £10,200,000 for this purpose, or more than half of all the money lent by the principal lending agencies for house purchase. Their current surplus or "profit" on their operations goes to build up their reserves.

Societies raise practically all of their money from the public. To do this they must pay a rate of interest competitive with that offered by other bodies.

If societies do not pay competitive interest rates people who have lent them money will take it back and invest it at the higher rates obtainable elsewhere.

I think I should spell out the consequences of this.

First, the societies could not lend for any more houses. The building industry which, in 1968, employed an estimated 82,000 men, would be hit. Jobs and incomes throughout the economy would suffer.

Again, the societies could not, as they have in recent years, provide one of the fastest growing sources of finance for the ever-increasing numbers of houses needed in our society.

Finally, the confidence of people in the stability of the societies would be endangered by any indication that the societies may be subjected to such conditions that savings invested in them would not be safe.

For these reasons, societies must be free to adjust their interest rates to investors upwards or downwards in accordance with market trends—which are governed largely by what is happening to interest rates not only in this country but throughout the world. Ministerial consent or sanction is not required to these adjustments, though as a matter of courtesy the societies notify me of their intentions.

I have given special consideration to the position of existing borrowers which was examined in great detail in 1967 by the Minister for Industry and Commerce. Societies borrow on terms which permit the lender to withdraw his money on demand or at short notice. House-purchase loans are, however, made for terms of about 25 years.

This means that all loans to borrowers made when interest rates were low must be maintained by the societies from money borrowed at current interest rates. The result is that when interest rates rise, societies must carry heavy losses for these earlier loans—unless they revise the interest rate applicable to them.

Bearing these considerations in mind, most societies include, and most borrowers accept, a provision in their mortgages allowing the society to vary the interest rate. If they did not do this, interest rates on new mortgages would have to be increased well above the existing level.

This would mean that people buying houses now or in the future would be subsidising those who bought their houses at cheaper prices or lower interest rates in the past and who may stand to gain substantially by the increase over the years in the value of their houses.

While I have the greatest sympathy with those persons who may be called upon to pay higher interest rates now, in accordance with the terms on which they accepted their loans, the Government must use available public finance to increase the supply of housing and to help persons now without decent accommodation to acquire it. To take any other course would directly affect the housing programme and retard the Government's efforts to provide proper accommodation for all persons requiring it. The total amounts expended from central and local authority funds for housing have grown from £16,300,000 in 1961-62 to an estimated £41,600,000 in the current financial year. The extra amount which a person required to pay an increase of one per cent in his loan repayments would have to pay would come to approximately 3s. a week for each £1,000 of his loan. For persons paying a ½ per cent extra the increase would be 1s. 6d. a week approximately for each £1,000 of his loan. Most persons paying increased interest will, of course, be eligible for tax relief.

I should add that following the recent rearrangement of functions, I intend to invite representatives of the societies to a discussion on general questions affecting finance for house purchase as soon as certain preliminary investigations I have in hand are completed.

In so far as loans from the Local Loans Fund are concerned, I would refer Deputies to the reply today by the Minister for Finance to Question No. 55. The fixing of the rate of interest on house-purchase loans to individual borrowers is a matter for each local authority. Under the provisions operative from 1st October, 1964, farmers, and certain other persons in rural areas, building a house may qualify for grants of up to £920. For other persons the grants may amount to up to £570. At current interest rates, these grants are equivalent to a subsidy of about £87 and £54 a year for 35 years to a person providing a house for himself. In addition, rate remission, a specially reduced rate of stamp duty and, in some cases, a site subsidy of up to £150 are applicable. It is not proposed at present to vary these subsidies.

Is the Minister aware that the building societies attribute the cause of this problem to the failure of the Minister for Finance to meet their proposals?

Does the Minister not agree that this is a form of welshing on the part of the building societies which is very much resented by the people who are setting out to buy money in the way they have to and does he not further agree that if it continues people will never own their houses but will have to look for a further extension of time in order to continue to buy the money at the high rate of interest?

The answer is "No" to the three supplementaries.