This motion is in four parts. The first part is:
to examine the causes giving rise to the increase by building societies in mortgage interest rates for existing borrowers;
Most people who have bought a house from a building society in the last ten years thought that the rate of interest would be on a fixed basis and that if it was 8 per cent it would remain at 8 per cent. Up to three or four years ago this was the practice, regardless of whether interest rates went up in the banks, merchant banks or in any commercial business. The interest rates remained the same. This feeling was strengthened by the fact that the SDA loans were on a fixed rate of interest. In the case of a city like Dublin, up to three or four years ago 80 per cent of those who purchased a house under 1,200 square feet nearly always got SDA loans. The Government ran out of money and they forced a tremendous number of people to look for money from building societies. Prior to this, where they could not get SDA loans the people borrowed from a building society. In any given area in Dublin where there were houses of under 1,200 square feet, over 1,400 square feet and up to 2,000 square feet the majority of people were on SDA loans so that the average person thought that once he bought a house he had it on a fixed rate of interest and had a fixed rate of repayments. Deputy Clinton pointed out that when the interest rates went from 8 per cent to 8½ per cent this meant an extra £35 per annum in repayments. This extra £35 repayments was on top of the original rate at which the man thought he would repay for the rest of his life. In recent years people could not get SDA loans. They were turned down by the former Minister for Local Government. They were put to the pin of their collars to get loans. They had to have a certain salary in order to get a loan and that salary also included overtime. If they got a loan they were paying £6, £7, £8 or £9 per week repayments. On top of that, they are asked to pay an extra £35 per annum. To many of these people this is "the straw that breaks the camel's back". Many of these people run into trouble.
Deputy Clinton pointed out that in some cases people who had borrowed 15 years ago, and who would now be coming near the end of their repayments, got their money at 5 per cent, but the rate of interest has now jumped by 3½ per cent. This is a tremendous jump. A person could argue that they got their money cheaply but they got it at the going rate of interest. The bank rate at that time must have been 4 per cent or 4½ per cent. Suddenly they are asked for 3½ per cent extra. This kind of jump quickly upsets one's calculations. I am worried about a person who came in blindly thinking he would have certain repayments for the rest of his life and that the only thing that could go up would be rates. The ground rent, if any, would remain the same. We all know that the building societies must look for their money in the open market. They must be competitive against the merchant banks who offer 6 per cent, 7 per cent or 8 per cent, or whatever the rate is at the time. They must be able to collect this money. They take money on a short-term basis.
Scarcity of money is the reason for the jump in interest rates. Inflation has also caused an increase. Government spending in this country has been the greatest factor in inflation. They have spent ad lib. and have taken money out of the private sector. Their share of the national cake is now reaching unprecedented proportions and the private sector is getting less and less. The private sector is paying any rate of interest asked in order to get money for development. This in itself puts up the cost of building because the builders must repay the interest before making profit. Where the Government, because of the inflation which they have caused, are looking for loans they can go on the public market. Their loans can be greater because they are long-term. They do not have to pay out on a short-term basis. They offer 9 per cent or 9½ per cent and the person who is willing to wait five or ten years can put money into such a loan and get 9 per cent where he would get only 8 per cent from a building society. This is making money more scarce and the building societies can, and do, pay less because they are on a short-term basis of three months or perhaps six months.
Clause (1) calls on the Government to examine the causes giving rise to the increase by building societies in mortgage rates for existing borrowers. The Government could copy those who rent property in this city. That would get over the initial period in the life of a young married person with one child who is buying a house. I am sure the Minister knows about the renting of property. Property is rented on a 35- or 36-year lease. In the case of a loan it would be over 35 years. There should be a seven-year break somewhere in it. I am saying that the building society when it gives a loan at 8 per cent keeps it at that 8 per cent, regardless of what money is lent at, for a certain number of years. Perhaps there should be a break at the 12- or 13-year stage in order to have a look at the cost of money at that time. The problem arises in the first five, six or seven years of marriage. A man probably buys a house to keep up with the Joneses. That is all right if he can afford it, but if someone in the family gets sick he cannot afford it, so it is in the initial period that he should get help from the Government.
The building societies should be controlled so that they cannot increase the interest charge for a certain number of years. In property there is a seven-year break. If you can get a 35-year loan— they are not inclined to give that—there should be a break every 14 years or every ten years. If there is a level period in the economy—which I have not seen for the past ten years—the interest rate can go up but this man is on the same salary and he has nothing with which to pay for that increase. The building societies should not be allowed to increase the interest rate until the person has occupied the house for X number of years, let it be nine or ten years.
Clause (2) of the motion reads:
to report on the claimed need for increases and whether and when such increases can be reduced.
We could go into various arguments as to why the rates should go up and down but the simple practical thing would be to tie them to the bank rate. Undoubtedly this would solve much of the problem. Deputy Clinton said that one never sees a building society bringing down their charges—perhaps they did once. The interest charge should be tied to the bank rate and allowed to go only a certain percentage above it, and if the bank rate came down the interest rate should automatically come down.
I do not know much about insurance but surely some alternative building societies could be introduced? If you go to an insurance company to buy a house you are quoted a rate of interest for a period, which rate never changes. Admittedly another person who goes in a fortnight or three weeks later may be quoted ½ per cent more or less. At least a rate of interest is quoted to you and you can work out whether it is worthwhile. That rate applies until the policy runs out.
Clause (3) of the motion reads:
to recommend the measures necessary to be taken to reduce interest rates or otherwise to ease the burden for borrowers if the increased rates are necessary.
Every time we have a debate on local government this comes up. A grant of £275 was introduced by the inter-Party Government in 1948 or 1949. There was a supplementary grant for certain people of something like £300. I do not know the exact figure. In the meantime the price of houses has gone up from £1,500 to £5,000. In the meantime turnover tax of 5 per cent has been introduced. On certain items the wholesale tax applies. This very nearly wipes out the grant. The Minister may say that the greater portion of a house is not liable to turnover tax. He may be talking about quantity but I am talking about quality and by "quality" I mean the expensive articles. I think turnover tax is not charged on cement and gravel. The cost of putting up four walls is negligible compared with the cost of timber and the various fittings. All these things are liable to turnover tax and some of the more expensive of them are liable to wholesale tax, I think. I am not sure of that, but certain items are. Wholesale tax is paid on a carpet. It may not be on the price of the house but eventually it is on the cost to the purchaser. Some items involve turnover tax of 10 to 15 per cent. I do not know exactly what the charge is on each of the items.
We should try to help these purchasers and the people who are really hurt. There is a case which I have mentioned before and which I will continue to mention until something is done about it. You can have three people on the same salary buying a house. One person pays £6, £7 or £8 per week. Another person pays £1 if he has the repayments I mentioned. Another person may be paying £1 or £1 10s a week because he bought the house sometime ago. The salary of the first person is very low when he has paid his expenses and automatically he will create inflation because when he goes to his trade union meeting he says he needs money to live and that he cannot live unless he gets an increase in his wages. This puts up the cost of all the items in the building line.
When you consider the cost of housing at the moment you go straight back to the price of land. We are now thinking of providing new sewers in certain parts of Dublin. Some years ago a main sewer was put through Griffith Avenue to service the houses for the next 20 or 30 years. It did not last five years. Nothing was done about sewerage in 1961 and 1962 because there was no housebuilding. The result was that there were sites in the city of Dublin with all the services laid on for £400, plus the ground rent, plus the cost of putting in a path. Today the price of that site is £2,000 and upwards with a higher ground rent and a footpath to be put in. If you control the price of land you do not get land. Nobody will sell it. If another company is formed some loophole is found so it is difficult to control it. Dublin Corporation have a very simple way of doing this. They provide sewerage schemes and I know they have a right to charge for them. They should charge a proper price and the money they get could be used by the corporation for development or for providing loans and grans. A person who has farming land worth, say, £500 per acre may find suddenly that the land can be sold for building in which case its value may be as high as £3,000 or even £10,000 per acre depending on the area. He has already made capital out of it which is not taxable. Therefore, a certain amount of this money could be taken from him by way of a surcharge on sewerage or, in other words, a greater charge on it.
No 4 is:
to examine and report on the adequacy of the present methods of financing house purchase by building societies, insurance companies and other sources, and recommend what steps should be taken to increase the flow of private funds for housing purposes; and that the inquiry be concluded on items (1) to (3) in six months and on item (4) within twelve months from its inception;
This, probably, covers the other three. No body or society will encourage investment from private individuals unless they are competitive in regard to the amount of interest they can give. If, as I suggested, there were a sewerage tapping charge or a charge for development, the price of land could be reduced greatly provided, of course, that there would be available sufficient serviced land. There are many other aspects of this but all I can say is that there should be some government rule under which the building societies would operate. This would help to alleviate the trouble and distress that is experienced by so many young couples in the years immediately following the purchase of their house. Some help should be given to them during that period. Afterwards, when they may have been promoted in their jobs or when their families have grown up, they may find it easier to manage but until this time is reached their repayments of up to £9 per week can impose a great strain. Added to the repayments, they also have the expenses of furniture and so on. To obtain this they usually have to resort to hire purchase, having spent all their savings of, perhaps, £1,200 or £1,400 on the deposit for their house.
Many people furnish only one room after they marry and, rather than live on the local authorities, they continue to manage living in that one furnished room until such time as they can furnish the remainder of the house. It is up to us to help these people in some way during those early difficult years, at least in so far as they can be assured that the interest rate cannot be increased. If one is lucky enough to be able to avail of a loan on the basis of an insurance policy, he will find, in most cases, that the interest rate is lower than what would be charged by a building society. Also, once a loan has been obtained from an insurance company at a given rate, that rate will not be changed. A person availing of such a loan will also have the advantage of a life policy on the repayment.
