asked the Minister for the Environment if he will make a statement on his discussions with the building societies regarding their proposal to increase mortgage rates; if he will indicate the measures he intends to take to more effectively control mortgage rates; the measures, if any, he intends to take to assist householders who face an increase of as much as £80 per month; and if he will make a statement on the matter.
Ceisteanna—Questions. Oral Answers. - Mortgage Rates.
8.
In the first instance. I would refer the Deputy to what I said about building society interest rates in my Second Stage speech on the Building Societies (Amendment) Bill, 1986, this morning.
Over the past week I have met with representatives of the major building societies on a few occasions to discuss interest rates and other matters. I indicated my concern that the size of any increase in the mortgage rate arising from recent increases in interest rates generally should be kept to a minimum in the interests of house purchasers and the housing programme. I also made certain suggestions about methods of applying any increase so as to alleviate the impact on borrowers.
In the event the Irish Building Societies Association did not on this occasion agree a common position in regard to interest rates and announcements of new rates are to be made by individual societies. The level of increase which has already been announced by one society is in my view unwarranted. A major problem in this regard is that the approach adopted by this particular society inevitably puts pressure on other societies and institutions operating in the financial markets. I am extremely disappointed that this position should have arisen and am actively considering its implications.
A responsible approach by the societies to the determination and application of increases in interest rates is the best assistance that can be offered to householders at this time. As the Deputy is aware, the Government already provides, from scarce resources, a generous package of tax concessions and grants to assist householders in purchasing, maintaining and improving their homes and additional assistance towards mortgage repayments could not be contemplated.
I suggest that we should not have a duplication of the discussion on the Bill that is before the House.
There will not be, if I get answers from the Minister. The Minister has described the increase of 3 per cent as unwarranted and suggested that building societies should keep their interest rates to a minimum. I understand he said this morning that he regarded an increase of 2 per cent as the most that is required. In view of the fact that in the Bill before the House restrictions on building society interest rates are excluded I should like to know if the Minister has any other proposals in mind for controlling them or ensuring that if societies raise their rates to what he regards as an unwarranted figure he will have some control to prevent them doing that.
It is not quite correct for the Deputy to say that the Bill before the House specifically excludes control provisions in relation to building society rates generally. It would be more correct to say that the Bill does not provide for control, it does not include an exclusion provision. However, traditionally it has been the approach of successive Governments to allow building societies to respond as necessary to movement in interest rates generally. That requires a responsible attitude on the part of the societies. If it was felt that the response of the societies was less than responsible in the prevailing circumstances in the market that would pose grave questions for a Government. It is to be hoped that that will not arise. I am sure there will be general agreement that it would be very serious if we reached the stage that the Government were having questions posed to them in the Parliament of the tenor of the question Deputy Mac Giolla asked.
This is the last supplementary I will allow on this question and I do not think I am being unreasonable in that.
I do not think it is fair to restrict my questions.
In my view it is because a debate has been in progress in the House since 10.30 a.m. on this topic and it will be resumed immediately after Question Time. Indeed, if this question was tabled now it would be disallowed on the basis of anticipating a debate which is before the House.
When I tabled the question I did not anticipate the debate. I have no control over when a Bill is taken.
I could have ruled the Deputy's question out of order this morning.
I hope the Chair will not be too restrictive. I have two questions to put to the Minister.
I will allow two questions, if they are brief.
The Minister has not replied to my question. He has told us that the position could be very serious if certain things happened but I must put it to him that these things have occurred, he has negotiated with building societies and told them of the limit beyond which they should not go. The societies have gone beyond that limit and I should like to know if the Minister has spoken to his Cabinet colleagues about this, as he promised on the radio this morning. What are the Government prepared to do in response to this defiance by the building societies? Has the Minister reached a decision in regard to controlling the societies who defy the Government and the Minister?
So far we have had an indication from one society but, as I indicated, once that intention is implemented a great deal of pressure is put on colleague societies and other financial institutions. When I discussed this matter with the societies last week I suggested three different options to them based on my firm belief that the present rise in interest rates is of a temporary nature. I suggested that the societies should consider either deferring the adjustment of repayments for some time until the market returned to stability and the temporary hike in interest rates fell. I suggested that the societies would have the option of recovering whatever the additional charges were at a later date.
Secondly, I suggested that they might recover the additional cost by giving the mortgage holder the option of having the mortgage period extended rather than increasing the monthly repayments. I had hope that the societies would show an interest in my third option which was that they should consider notifying borrowers of a fixed repayment sum for a fixed period ahead. For example, that the borrower's repayment for the years ahead be fixed so that the borrower would know with certainly what he or she had to pay over a 12-month period. I suggested that at the end of that period the account of the borrower should be examined to see how the repayment profile had performed as against actual movements in interest rates with a subsequent adjustment in the ensuing period. The adjustment could be up or down, depending on the way the market had moved in the meantime.
That has obvious attractions for borrowers in that it introduces a certainty for them over a reasonable period ahead. I hoped it would have had attractions for the societies in that it would reduce the considerable administrative costs to them in notifying changes to their borrowers from time to time. I asked the societies, if they adopted that fixed repayment sum over a specified period, to allow borrowers the option of repaying in less than 12 monthly instalments over an annual period so that a borrower might have the option of excluding a particular month such as the month of December. Many borrowers might prefer to pay a fixed sum in 11 instalments so as to use their repayments as a vehicle for saving or to have additional cash in the month of December.
With the exception of the society which announced an increase, and has notified me that they do not intend to implement any of the options I have outlined but would consider hardship cases made to them, I have not had any clear indication from the other societies as to whether they are prepared to implement any of the three options. I have not been notified by those societies of their specific proposals regarding rate changes. In order to ensure that the House is fully informed I should like to state that some of the other societies have indicated to me that they believed that if one society went ahead of the pack and set a rate level which might not be considered necessary by those societies they would feel it very difficult not to seek to match that offer level so as to remain competitive within the general building society movement.
I want——
This is a continuation of the debate on the Bill and the Deputy realises that perfectly well.
I want to thank the Minister for his reply.
The Deputy has already asked three questions.
When speaking of his Cabinet colleagues this morning did the Minister make any suggestions to the Minister for Finance about the possibility of a claw back from building societies who would exceed what would be the norm in order to compensate householders who would be at the loss of possibly £80 a month?
That is not in order. The Minister will not discuss what took place at a Cabinet meeting.
Did the Minister discuss it with his Cabinet colleagues?