Much more major legislation with regard to the role of building societies is required. It is about time the Government introduced legislation covering the possibility of giving the societies the right to enter into the whole area of commercial banking. Building societies since their foundation have played a major role in helping people to provide their own homes and something in the region of 80 per cent of all mortgages have been obtained through societies. On a point of order, may we have a little less noise?
Building Societies (Amendment) Bill, 1986: Second Stage (Resumed).
Question again proposed: "That the Bill be now read a Second Time."
Order, please. Deputies who want to have discussions should leave the House.
The societies themselves must also have a very serious obligation to the public, and this should not be forgotten. When you go back to the original objectives, when societies were first formed, you find that they were set up for the purpose of helping people in the lower income bracket to purchase their own homes. I am afraid that many of the societies, unfortunately, are inclined to forget this and I shudder to think of the massive advertising costs, for instance, that a number of those societies have undertaken in recent years, some of them quite unnecessarily.
The Minister for the Environment recently expressed very serious concern and anxiety about the 3 per cent increase imposed by building societies. Indeed, he threatened all sorts of dire actions and consequences, but the truth, of course, is that despite this legislation or any other the Minister can do absolutely nothing to prevent the latest rise or any other rises in interest rates.
The introduction of the DIRT has had a devastating effect on all operations of all building societies and in one swoop took away the main attraction that building societies had for so many small savers who were not anxious to have the extent of their savings revealed to the Revenue Commissioners. A sizeable proportion of depositors were willing to accept lower interest rates in exchange for what was a guarantee of confidentiality. However, the DIRT removed this one attraction and brought building societies into line with the commercial banks and the consequential effect, of course, was that building societies had to compete with commercial banks for deposits and thus interest rates had to be brought to par or even made more attractive.
Funds of dubious origin can be invested with complete confidence anywhere now because there is no longer an obligation on any of our financial institutions to disclose names of investors. Previously an investor benefiting by £50 or more per annum in interest automatically came into the tax net. It was always felt that confidentiality was breached and this was something that the small investor felt very concerned about.
Building societies must now compete strongly with other financial institutions for deposits and in recent months competitors, such as the commercial banks, have been able to offer more attractive rates which naturally drew funds away from building societies. The societies have claimed that in 1985 total deposit income for all building societies was £172 million but that in the current year it is estimated new deposits will be less than £80 million which is a drop of more than 50 per cent. If this trend continues the mortgage holder will continue to be the victim of higher interest rates. I believe the Minister must seriously consider allowing societies to operate in a way similar to commercial banks and this would then allow the societies to hold down mortgage rates.
There is no doubt that the non-disclosure rule in the past cushioned the building societies and gave them a major advantage over commercial banks. Unfortunately, on the other hand it would appear that the societies themselves did not operate as efficiently as they should have done and management expenses soared to ridiculously high levels as can be seen from the latest financial reports covering in particular the "Big Four".
It is amazing, indeed, when comparing management expenses of the different building societies to notice the huge gap that exists in these expenses from the highest end of the scale to the lower end and this varies from, in one case £2.56 per £100 in assets down to £1.32 per £100. The office network of building societies in unbelievably wide as even some of the smallest towns around the country can boast of having up to maybe three or four branch offices of the various groups. One must very seriously question the necessity for this type of expenditure by societies which, of course, in the final analysis must be borne by the mortgage holder.
Building societies should examine whether this vast, wide network of branches all over the country is absolutely necessary. The societies also must operate in the best interests of their depositors and again, I believe, the largest percentage of our depositors have their investments with building societies for one reason or another. Recent circumstances have, of course, accelerated matters since the introduction of the DIRT which has driven up to nearly£1,700 million savings from this country since its introduction last January.
The building societies cannot be isolated from the movements in the money market and one must be particularly concerned at the threat that mortgage rates in the future will be based on the performance of rates on the Dublin inter-bank market. Inter-bank rates have always been much higher than mortgage rates and if the difference were to close, even in a small way, it would be even a more serious blow to the mortgage holder in the future.
The overall management of the economy by the Government is, of course, the vital cog as far as financial institutions are concerned. It is very obvious that if the Government run a current budget deficit of £1,500 million, which is the highest in money and percentage terms in the history of this State, this must have a serious, traumatic effect on the funding of the Government and money markets which, in turn, has a disastrous effect on the small investor and also on the mortgage holder.
The managing director of one of our major societies said recently that the imposition of DIRT will, on its own, bring a .5 per cent increase in mortgage rates. It is, therefore, ludicrous and dishonest for the Minister to say that such increases would not be acceptable to the Government when in reality it is he, and his Government, who have been the major contributors to the difficulties in the money market with the consequential effects on the building society sector in particular.
The Minister's criticism of financial institutions is very much in contrast with his colleague, the Minister for Finance, who recently said when interviewed on radio with regard to the threatened 4 per cent mortgage rise that there was very little he, or the Government, could do about it as this was a trend outside the control of the Government and ourselves as a country. This is a complete contradiction of the stand taken by the Minister for the Environment.
With regard to the Bill itself I should like to refer specifically to section 4 which relates to tiered rates as this has been one of the most publicised and controversial issues of the Bill. In principle very few people could oppose the removal of the two-tier rate structure but, nevertheless, guarantees must be given by the Minister that the removal of the premium rate for large borrowers, which will result in a reduction of their repayments, will not be at the expense of the lower scale mortgage holder.
It is illogical for the Minister to presume that removing tiered interest rates increases competition among building societies and must therefore be in the borrowers' interest. What will happen is that the large borrower, instead of paying the premium for a large loan, will get his loan at the same rate as everyone else. The level of basic mortgage rates will then be likely to increase and obviously will be at the expense of the borrower in the smaller bracket of £25,000 to £30,000. Tiered rates have, of course, been a very common principle as far as the commercial banks are concerned and the principle has been very long established.
I welcome the prohibition or restriction on the charging of redemption fees, the making available to the borrower of valuation reports and the alteration in the insurance of the property. Nevertheless I feel that building societies will have very strong reservations about the insurance aspect of the property as it may well be impossible for the society to safeguard their particular interest if they are not aware whether the property is adequately insured or otherwise.
Most of these changes will obviously result in additional costs to the society and, as always in such cases, such charges are very rarely carried by the financial institution itself and will obviously be passed on in some form or other to the mortgage holder.
I regret that the Minister did not go into the area of introducing greater legislation for building societies and it is obvious that this Bill has been rushed into with great haste following the recent disagreements and quarrels the Minister has had with the various executives and institutions.
The Minister must not fail to recognise that the reality of the situation is that mortgages constitute the single most important expenditure of 120,000 Irish families. I would be concerned that the implications of this Bill may bring more increases on mortgage holders due to the Minister's window dressing and piecemeal legislation which may in the long term be unhelpful to everybody. It is essential for the long term future stability and security of the mortgage holders that the air be cleared completely as far as the economy is concerned. It has been indicated by a number of prominent people in financial institutions that only an early general election can ease the present uncertainty which has become a major barrier to investment with the resultant serious effect on interest rates.
I want to say a few words on the very important subject of building societies, their operations in our society, control of them and their impact on a large and very responsible sector of our society. All this to my mind is very important.
In the explanatory memorandum the Minister says that the Bill will empower building societies to make loans for such purposes, and subject to such conditions, as may be prescribed by the Minister for the Environment and not solely on the security of a mortgage as heretofore. All Members of this House know that one of the bonanzas for the banking institutions for some time has been the provision of bridging loans at very high rates of interest.
I understand the Minister is endeavouring to empower building societies to provide bridging loans. I presume the rate of interest that would be charged on bridging loans would not be significantly greater than the agreed interest charged on the mortgage. This is important. There is not much point in giving power to building societies to provide bridging loans if all they do is provide the bridging loan at a high rate of interest. I know young people who have decided to take the very serious step of purchasing a house. They have been practically strangled when there was a delay in the provision of the money by the building society, for whatever reason. Very often the reason is connected with the legalities of the procedure — the titles are not easily verified and so on. A legal personage in my county told me that in County Cavan and many other counties people are living in houses which were built originally on property to which they had not title. This of course, rectifies itself through the passage of time, but apparently it is true and he gave me a number of examples to prove it.
I do not know what other areas the Minister might have in mind for the empowering of building societies to make loans but that is one which I would support in the terms I have mentioned, namely, that the interest rates would relate closely, if not identically, to the rates about to be charged when the mortgage is through. It could be argued that there was a little element of risk there compared with the mortgage when the site and house were there to guarantee the mortgage but, if this Bill addresses this serious social ill of people being bled to death by high interest rates on bridging loans, it is to be welcomed by the House. Even before now this House should have taken cognisance of the colossal amount of profit that was made out of young people about to purchase their houses and having difficulty before the building society provided the money or the legal people cleared up the problems.
The second point made in the first paragraph of the explanatory memorandum deals with tiered rates. I have not listened to all the contributions to this debate so far but I am sure this has been teased out already. This is a very difficult area and we must take a balanced view of it. I am afraid that removing the higher rate from the higher loan will, like a bad drainage scheme, back up river and cause the person on the lower loan to eventually pay some part of an integer of a percentage more for this mortgage. If that is so, I would be opposed to it. No doubt the rationale will be given and explained by the Minister in his reply, but as of now I am not convinced that the poorer man will not be paying for some of the advantages given to the richer man.
Section 6 empowers the Minister, after consultation with the Registrar of Building Societies to make regulations prescribing building society rules. When both Houses pass a Bill, the President signs it and it is put on the Statute Book but if it gives powers to the Minister that are not circumscribed, that is a dangerous move. The idea of empowering in that way has been criticised many times here by people experienced in legal matters. Some of the objectives of the empowering are to be welcomed and praised but, nevertheless the principle of empowering a Minister without his having to come back to this House is something we should be very chary about. The explanatory memorandum says that the building societies have to be consulted, but if the consultation takes the form a great deal of the consultation which has taken place recently between the Minister for the Environment and the building societies has taken, I cannot see how it would have much impact in making the Minister modify his decisions. It is a running scandal that the Minister and the building societies are not pulling together in the interests of the citizens, either those who invest in building societies, and there are many of them, or those who have mortgages from the various societies.
The first restriction is the prohibiting or restricting of the charging of redemption fees, that is, any amount over and above the principal and interest due at the time of redemption. I am in total agreement with that. I am sure there was an attempt at justification for that when it was originally decided upon but it is like the final flick of the whip for the donkey just when he is going free. Whether any claim is made that a service is rendered in lieu of the redemption fee I do not know, but it does not seem to be justifiable in any way. The second restriction is:
the making available to a borrower of the valuation report on a property required under section 79 (1) (b) of the Building Societies Act, 1976;
This seems to be only fair and just, that the person who pays for the service should be entitled to have a view of it. The next is:
removing or restricting the right of a society to require a member to insure the property with a particular insurer;
That, of course, is enhancing the freedom of the borrower and in that sense it is to be welcomed. One point on that is that if the society is dealing with a specific insurance company as is usually the case, there is a possibility that the society would be able to get a better deal seeing it is doing big business with the company. If that society passes on this benefit to the customer there would not be anything particularly wrong about it. I suppose the society will continue to do that, to pass on the advantages of doing business with the insurance company to the borrower, if the borrower is willing to accept the policy from that company as recommended by the building society. There is a freedom in a number of directions which is important. I presume the intention here is to remove the compulsory element so that the member of the building society would have the freedom to insure some place else than the place recommended by the building society.
The next restriction in the explanatory memorandum is:
—precluding or restricting a society from requiring a member to pay its costs of legal investigation of title to the property which is being mortgaged;
I do not know if there is any distinction made between the words "precluding" or "restricting". "Precluding" means cutting it out altogether. Perhaps the Minister would let me know about this. Technically until the last mortgage repayment is made, the site and the house belong to the society. I know there are various qualifications on that and that the society cannot do what it likes all through the 25-year or 30-year period of the mortgage, but the fact is that at the start of the operation anyway the biggest ownership input is by the society and it seems to be only right and equitable that the society should pay.
This point about the insurance could equally apply to the next restriction which is:
—the arranging by a society with an insurer for mortgage protection insurance.
I mentioned already that one of the regrettable aspects of this Bill is that it is coming in a climate of antagonism. The building societies are embattled and the Minister is attacking. As Bernard Shaw said at some stage, "Irish people are not at their best when they are in an angry mood". I am just wondering how that climate may have impacted on this Bill. The Minister said he intended to expand much further than this Bill the areas of activity for building societies and many building societies are clamouring for just that. They are under pressure from the banks. There is no doubt but that the banks have been conducting a kind of guerrilla warfare against the building societies for some time. The banks are very powerful institutions and the societies are convinced that the whole procedure of the retention tax, the DIRT tax, and the attempt to equalise the banks and the building societies with regard to their powers to attract investors was a deliberate move by the Government in favour of the banks and against them. The societies are anxious to be allowed to engage in other banking activities in order to be able to attract more customers. They took exception to the Government's agreement to the Bank of Ireland being allowed to take over the ICS Building Society.
I was on an RTE programme recently where the managing director of one of the building societies said that as a result of that vast sums of money were transferred from the Bank of Ireland into the Irish Civil Service Building Society. I have no way of knowing that but the figures for investment are such that there is an indication such a transfer took place. One result of this whole action has been that the building societies feel that money has gone, in that instance to another society that does not belong to their group, but in many other instances away from the country altogether. The element of confidentiality seems to have been restored with regard to banking deals now and this has always been jealously guarded by the building societies. That is a good thing. We may have made a mistake in that we did not establish ourselves as a country where money could be lodged and where, barring criminal circumstances, nobody could find out where that money was lodged.
The introduction of the rule that the banks had to report interest accrued over a certain amount — when Deputy Dukes was Minister for Finance he reduced the figure overnight — was a mistake. Small places like the Isle of Man and the Channel Islands gained from the lack of confidentiality with regard to money matters. Switzerland has enriched itself by establishing very strict rules in regard to confidentiality. The building societies prided themselves on maintaining confidentiality, they made a deal and they paid tax which was increased in recent years. The pressure was on them and I am sure the fact that they were ready to accept deposits enriched this country with money which otherwise would not have been deposited here. I am thinking of the time we joined the European Monetary System and when it was reasonably well known — at least in my part of the country — that we got money back from Britain and the Six Counties and that much of it was lodged in the building societies. That is a very important aspect of the whole banking scene.
The recent increase of 3 per cent is a very severe blow, particularly to those who are just starting off and who have very tight budgets. Nowadays young people who buy a house by getting a mortgage from a building society have to cost it very carefully. It has been a tradition that people have deprived themselves of even frugal comforts in order to be able to buy a house. I know that we have the highest percentage of house owners in Europe but I was told recently that we have the highest percentage in the world in that regard. It is true that people with very substantial salaries in some European cities could never hope to own a house in a European city roughly the size of the greater Dublin area. Home ownership is desirable and for that reason it would be the wish of the House that the rise of 3 per cent will not last too long. The House would wish also that the social ambition for people to own their own houses would continue. I remember being at an educational conference years ago and a man from Munich, who had a very substantial salary as headmaster of a gymnasium, told me that he would never own a house despite the fact that his salary was treble that of people buying houses here.
There may be Deputies who, because of their age bracket and because they have been through the business of applying for and getting mortgages, are perhaps a little too complacent about the problems of young people. Of course we must relate salaries to what they were 20 or 30 years ago but nevertheless income comparisons influence our thinking though the price of houses may have multiplied 20 times during that period. Salaries and wages have not kept pace to the same extent. There should have been representative costings produced so that a full realisation of the heavy load placed on young people at present could be made in the House. When you think that a house which was bought for £2,500 in the sixties now costs £40,000 — even though prices have fallen — it gives an idea of the scale of the increase. Perhaps young people are not willing to make the same kind of sacrifices we made but we can be a little hard and critical of them because they do not invest in a house. Several young couples of my acquaintance are scared to make such investment even where the husband and wife are working. Indeed very often it is essential for the wife to work because of heavy payments on mortgages. In many cases the wife does not work by choice.
The general financial policy of the Government has been largely responsible for high interest rates. Any commodity which is scarce gets dearer and this applies as much to money as to chickens, potatoes, coal, oil or anything which is scarce. The parlous state of the country's finances at present is responsible to a great extent for the high interest rates in a period when inflation has dropped. A number of comments have been made on what happened to the money to make it scarce and the big talking point is not the national debt and the Government's inability to get money in the market. The Taoiseach announced that the Government had to call down loans from Europe recently. The House will remember that he did that when there was near panic regarding a further devaluation of the IR£. The Taoiseach had to say they would confine their budget deficit next year to 7.4 per cent of GNP. All this is linked to the question of the rates of interest on mortgages. Commentators generally contend that the sum of £1,500 million went out of the country because of the retention tax. Even small savers were scared that the £100 interest on which they were depending would now be £65. It is well known that little suitcases full of money have been travelling to Newry, Enniskillen and Derry in the wake of this tax. Of course that is not taking the big stuff into account, it is switched around nowadays by pressing buttons. These amounts of money leaving the country are a serious drain and this has an impact on the building societies, banks, borrowings and loans.
We also have the repatriation of profits by foreign companies located here. The removal of that money from the country makes it harder for banks, building societies and the poor unfortunates who borrow money in the hope of establishing homes for themselves. We have received an assurance that the budget deficit next year will be 7.4 per cent of GNP. The former Minister for Finance told us that the deficit for 1986 would be £1.25 billion. Recently we were told the deficit would overrun that figure by £180 million. The most recent forecasts are bringing it up to between £1.4 billion and £1.5 billion. In those circumstances our hopes that the problem about mortgage interest rates will go away fairly quickly are unjustified. I hope I am wrong. The Government stand condemned.
The Government had great advantages since the period when oil prices began to fall. That money was left in this country for investment. It was lifted out and put down in Saudi Arabia, Iraq, Iran, the UK, Norway, or wherever oil was for sale. I do not think people realise the extent of the drop in oil prices. As I say, that money should be here and should be available for the purposes we are talking about. For example, in January 1979, the year when prices went crazy, the price of a barrel of light Arabian crude oil was $15.95. In February, the price was $19.50; in March, $20.80; in April, $21.20 and in May, $34.25. The average for 1981 was $39.25. The current issue of The Economist quotes a figure of in and around $14. Since Sheikh Yamani went it is said they have been trying to push up the price to $17 or $18 a barrel. That will take some extra money out of the country. That money should be in this country. We are now paying only one-third of what we were paying for oil in 1981 and that money should be available here. There is an obligation on the Government to organise their taxation policy and their fiscal and financial policies in such a way that that money will be left in the country. If there was a glut of potatoes, your four stone sack would be cheaper. Consequently, money would be cheaper if it was organised in such a way that that money was left here.
On a previous occasion when the building societies were suffering a temporary inflow problem the then Minister for the Environment went to the EC and arranged that funds would be made available to the societies. They were guaranteed against exchange rate losses which in turn protected the mortgage holder from a higher interest rate. Can the Minister say whether any such effort was made to obtain EC funds to relieve the high pressure on mortgage holders in this instance? The Minister says, and I accept his word, that his aim is to protect the mortgage holder. If that is so, that is another avenue he could have explored. I have already said that commentators are of the opinion that interest rates will not remain high for a long time. I hope that is true. I gave my reasons as to why I doubt that. Agreeing to the premise that it will only be for a short time is an added reason some attempt should have been made in Europe to try to alleviate, in the short term at least, for a brief period the position of the mortgage holder.
I would like to refer to the definite arrival of English building societies to do business here. I have heard it stated that, until there is a considerable relaxation of the rules, this is unlikely to happen. I am enough of a traditionalist to want to see the Irish societies hold their position and sustain both the inflow of funds and issuing of mortgages at the level at which they are doing so now. I am only talking about England at present. There is no reason why societies from other countries may not locate here under the right of establishment in the Treaty of Rome. There are 120,000 mortgage holders and 800,000 depositors in the country. In the best sense, a segment of our society is deeply interested in what this House does about the rules for building societies. There is an obligation on this House to protect the mortgage holder and there is an obligation on this House to protect our citizens who have invested in building societies. I appeal to the Minister for the Environment, Deputy Boland, to come back again, after he has simmered down and allowed peace to break out between himself and the societies, with more comprehensive legislation which will be to the benefit of investors, the holders of mortgages and the country in general.
A Leas-Cheann Comhairle, tá sé ráite sa teanga s'againne nach bhfuil aon tinteán mar do thinteán féin, agus dá bhrí sin, ag smaoineamh agus ag glacadh le fealsúnacht an tseanfhocail sin, caithfimíd go léir a admháil go bhfuil roinnt mhaith déanta ag na comhachtaí tógála seo thar na blianta chomh fada is a bhaineann sé leis na tithe atá ag roinnt mhaith de mhuintir na hÉireann faoi láthair.
Tuigim fein, mar dhuine a rinne representations ó am go ham, go raibh deacracht no dhó ag baint leis na comhlachtaí seo agus, thar na blianta, nach rabhamar i gcónaí sásta leis an modh oibre a bhí acu. Ach mar sin féin, tríd's tríd, caithfimíd glacadh go ndearnadar an-chuid maitheasa do dhaoine óga, daoine nach raibh chomh hóg san, a bhí ag iarraidh teach a cheannach. Feictear dom, freisin, níos déanaí agus tar éis an infheistíocht sin a dhéanamh sa teach, gur éirigh le roinnt mhaith daoine na tithe sin a dhíol agus brabach maith a dhéanamh chun teach níos fearr a cheannach.
Much has been said throughout the country about our building societies and it would be wrong if one gave the impression they were held in any great form of endearment by people who over the years have had occasion to go to them for financial assistance to purchase a house. However, it must be admitted there are countless thousands who own their own home, something we all regard as socially desirable, and who would not have it were it not for the assistance, understanding and services made available to them by our building societies. That should be acknowledged.
I had occasion to make representations to local managers expressing my displeasure about bridging finance, or when I discovered that the solicitor operating for the building society also operated for the purchaser. I had some reservations also when it seemed to me that there was an undesirable affinity between building societies and insurance companies. I did not regard that operation as ideal. If we take the proof of the pudding being in the eating of it we must say that the results of the investments, and the assistance given by societies were very good. I know many people who invested in a house, with the assistance of a building society, and when the value appreciated over the years they recovered their investment and moved to a greater investment. That would not have been possible without the assistance of building societies. In those cases it was not possible for local authorities, or the Government, to make money available. Building societies made it possible for people to purchase their own home, a desire that is inbred in Irish people. For those reasons we must recognise the contribution of building societies.
I understand that in 1988 freedom of services legislation will come to us from the EC as a result of which we will have an influx of continental interests. That may cause havoc to our own institutions. I wonder what protection they will get from this Government if they are in power in 1988 but, thankfully, one does not have to be a contributor to Old Moore's Almanac to know that that will not be the case. We must bear in mind the attitude adopted by the Government when the Bank of Ireland moved in on the Irish Civil Service Building Society. Promises were made then about protecting building societies. I know that building societies are not waiting for my advice on this matter but if I was anticipating what may happen in 1988, irrespective of the emotional terminology of cartels, monopolies and so on, I would expect to find it difficult to preserve my position and withstand the attacks that will come. I do not think they will get protection from the Government. The Government are anxious to accept every directive that comes from the EC. Their first response to the Single European Act was to demonstrate there was nothing at all in it, that it was just another obligation and everything would be grand although a blind man could see that it would be a continuation of the gradual erosion of our sovereignty, our freedom and our right to remain neutral. The building societies, in the light of their contribution in regard to the provision of housing, should watch their position.
Some years ago I was critical of building societies who were not, in my opinion, fulfilling their raison d'être by attending to those in the middle income group who were anxious to buy houses. At that time I had information that building societies were making money available to the builders rather than to those who were anxious to buy houses. However, I do not have any great objection to a special rate for those who borrow beyond a certain figure. Deputy Ray Burke, in the course of his contribution, said that in the Minister's case, his Rambo-type posturing provided him with the occasional favourable heading in the short term but resulted in a poisoning of the atmosphere between the societies and himself to the detriment of the hard-pressed families of the country. I must admit that when that statement was made I had some reservations about it but, having listened to the Minister today on another matter that affected me I am prepared to go further than our spokesman on what motivates the Minister. I am attributing to him in introducing the legislation an attitude that derives from his failure to get the building societies to respond to him in a way that suited him but was not beneficial to the building societies.
I have had an insight into the Minister's attitude in connection with the legislation the House debated earlier, the establishment of a commission to look after part of Dublin. On 17 June the Minister advised my secretary that he was anxious to see me but he did not disclose the purpose. As I had been in contact with the Minister about another matter concerning a constituent of mine I assumed the Minister wanted to pay a courtesy call on me to discuss it. When the Minister, and his Minister of State called, I, as Lord Major of Dublin, made them as welcome as everybody else who called. In fact, as he was a Minister, and was accompanied by his junior Minister, I made a point of making him more welcome. He mentioned his intention of making more money available to Dublin in respect of its improvement. I welcomed that good news. Before leaving he indicated that he was doing it by means of overlooking the responsibilities and obligations of the elected members and I told him I would not anticipate that the members of Dublin Corporation would be very happy about what he was doing. That is the position as it occurred on 17 June.
The Minister speaking an hour or two ago attributed to me an insincerity in my contribution on the legislation because I had welcomed the news he gave me. I did no such thing. I welcomed him and his Minister of State and I regret now that I did so. I indicated to them that the members of Dublin Corporation would be most unhappy about it. I have spoken to the Minister since but he says he did not understand that. He did not tell the House and did not tell me on that occasion that he was going to a lunch where he would announce the establishment of the commission.
Are we on the Bill?
We are. We are getting an insight into how the mind of the Minister operates.
I thought we were doing yesterday's work.
Earlier I gave a quotation from the contribution by our spokesman in which he gave an insight into the mind of the Minister and how he operates.
Is it relevant to the Bill?
It is very relevant. Our spokesman said that the Minister's Rambo-like posturings against the soft target of the building societies which have provided him with the occasional favourable headline in the short term have resulted in a poisoning of the atmosphere between the societies and himself to the detriment of the hard-pressed families of the country. I must accept that in toto because the Minister's attitude towards me as a Member of this House and as Lord Mayor of Dublin in respect of the other legislation was precisely the same. That is the point I am endeavouring to make. Because of the Minister's attitude to these matters I am afraid that what he has in mind here is not entirely to the benefit of the people for whom he would claim to express concern but rather it is his way of demonstrating to the building societies — who, after all, operate on the democratic principles which govern this country — that unless they respond to his dictates he has the means of forcing them to do so.
I am not unmindful of the fact that the building societies are trying to survive in that horrible world of money and have been endeavouring to move into other banking areas, especially since the introduction of the infamous DIRT tax. The Minister may be indicating to them that unless they play ball in regard to this legislation he will thwart their efforts to survive in other areas. I have no doubt about it, from my insight into the mind of the Minister, what motivates him, what he is capable of saying and how he is prepared to distort what happens and give an appearance of truth to what he knows to be untrue. I did not say he was telling lies.
I did not anticipate you.
I thought I detected that characteristic reaction that I myself used to feel in circumstances where any speaker might be about to introduce words for which we do not have the respect that perhaps we should if we were more sincere with ourselves. I try at all times to keep within Standing Orders.
With the reservation I have expressed, I acknowledge the contribution that building societies in general have made to the social and economic life of this country. I express concern that the pressure to which they are being subjected at the moment is not necessarily in keeping with what is best for them or the people; rather is it the outpourings of a Minister who for his own good reasons thinks he is a man to whom the powers to dictate rather than co-operate have been given. These are my reservations and accordingly I would be more in favour of being in error with the building societies than being right with the Minister.
The building societies have played a most important part in affording to thousands the opportunity to purchase their own homes. The building societies are not perfect. I had a great deal of experience of dealing with them prior to coming into this House. It would be untrue to say that all these dealings were of a happy nature but looking overall at the benefit derived by the people from the building societies it is only fair to say that without them this country would be a poorer place.
There is no disagreement about the necessity for an updating of legislation covering the operations of building societies. It is ten years since such a review took place and during those years the financial goalposts have moved considerably. Does this Bill treat seriously and in depth the underlying problems which face the building societies? I contend that it does not.
During the past week there has been an increase in building society rates and the implications of the increases are very serious for many thousands of families. In this period of depression when unemployment is at a high rate and thousands of workers are barely hanging on to jobs or accepting reductions in wages, increases in mortgage rates are a tremendous pressure on families. A person with a £30,000 mortgage faces an extra bill of £60 per month.
This increase has been brought about by a number of factors. The Minister and the Government must take the major responsibilty. The Government's total mismanagement of the country's finances has resulted in a complete collapse of confidence in the money markets which has driven general interest rates to record levels as against inflation. The factors which have brought about this situation are a record current budget deficit, a spiralling national debt and unacceptable levels of foreign borrowing. We were told four years ago that all of these were to go in the other direction, but it has been shown that those who were going to bring this about were not capable of doing so. Might I take this occasion to say that it would be the honourable thing for them to do——
On a point of order, a Leas-Cheann Comhairle, may I draw the attention of the Chair to the fact that since 10.30 a.m. this morning only one Government Deputy has spoken, which seems to be an effort to collapse the business of the House? On that basis I wish to call for a quorum.
That is not a point of order.
It is just another example of the lack of interest of the Government in the general populace.
Notice taken that 20 Members were not present; House counted and 20 Members being present,
Deputy Ahern to resume.
As I was saying prior to the count of the House——
When the Deputy's colleague rudely interrupted him.
This is a signal for some of the Opposition to be watering the cows.
It is nice to see some members of the so-called Government coming back into the House. As Members are well aware, one of the reasons for the interest rates rising in the last number of years is that the record of the Government with regard to their current budget deficit has driven them through the sky. We have a spiralling national debt and unacceptable levels of foreign borrowing. On previous occasions when the societies were suffering inflow problems, Fianna Fáil arranged that EC funds would be made available to them and guaranteed against exchange rate losses, thus protecting the mortgage holder. The protection of the mortgage holder is of prime importance today. Unfortunately, the present stance of the Government towards the societies and the mismanagement of Government will have blown the roofs off many family homes. It is of increasing concern that over the past number of months more and more people with difficulties about their mortgage have been coming to see me and, no doubt, to many other Deputies. The blame falls firmly into the lap of the present Government.
In the future, with the changes resulting from EC decisions, there will be an influx of British and continental societies into this country. Our national interest would best be served by a comprehensive measure which would strengthen the base and clarify the role of our societies in the future within our economy. The Minister has failed to do this in this Bill, a Bill which he and many speakers for the Government intimated would do so.
An area in which we on this side of the House feel there is a potential for greater competition is that of banking. Comprehensive legislation should cover the possibility of extending the rights of entry into the banking arena to the societies. Unfortunately, the Minister has missed that opportunity because what he was seeking apparently was some short term political gain by being seen to attack the soft target of the societies. We in Fianna Fáil feel that there is considerable room for improvement in the operation of the building societies and also that the Minister has lost the opportunity to protect the vital national interest. Surely one area of job creation in the future must be the financial services. It is vital consequently that we have a strong home base for this sector.
The societies play a major role representing, as they do, over 120,000 mortgage holders and approximately 800,000 depositors. It is the responsibility of the Government to deal with the societies, their borrowers and depositors, in a responsible way. This sense of responsibility was lacking with the introduction of the deposit interest retention tax which has driven up to £1.5 billion of savings from this country since last January. The building societies as well as the banks are governed by movements on the money markets. We are concerned at the threat that mortgage rates in the future will be based on the performance of rates on the inter-bank market. Recently there has been a difference of up to 4 per cent between the inter-bank rate and the home loan rate. The overall management of the economy by the Government is consequently of vital importance to the societies, their mortgage holders and their depositors. When this Government also run a current budget deficit of £1,500 million, which is the highest in money and percentage terms in the history of the country, this has a traumatic effect on the funding of the Government in the money markets which, in turn, has a catastrophic effect on mortgage holders. When the DIRT provision was spelled out back in January, immediately the building societies stated that it would bring about an increase in mortgage rates of around .5 per cent. The Minister said this would not be acceptable but what has he done about it? The reality is that he will not be able to interfere with market forces. The Minister for Finance was reported recently to have said about the threatened 4 per cent mortgage interest rise that there was very little the Government could do about it. We have one Minister saying it is not acceptable and doing nothing about it and another saying that he cannot do anything about it. Which do we believe?
One of the most publicised sections of this Bill is section 4 which relates to tiered rates. In principle, I would not be opposed to the removal of a two-tiered rate, but what be the effect of that? We fear that the removal of the premium rate for large borrowers will result in a reduction in their payments — about which we are not complaining — but at whose expense will that be? It will be at the expense of the standard scale mortgage holder, and that is what we object to.
For example, under the provisions of the Bill, a person borrowing, say, £60,000 instead of paying the premium for a large loan will get his loan at the same rate of interest as everybody else. This means that the basic mortgage rate will be likely to increase. The result will be that the less well off, those people scraping to provide a home for themselves and their families, will be faced with higher repayments. Is this what the Minister wants? Is that what the Labour Party want? Will the Minister confirm that that will not happen because otherwise we shall find it extremely difficult to support the provisions of this section?
Section 6, among other things, prohibits or restricts the charging of redemption fees, a principle we welcome. It also recommends the making available to a borrower of the valuation report, the alteration of the insurance arrangements on the property, changes in legal costs and the arrangement of mortgage protection insurance. Just as with the proposal to abolish tiered interest rates we fear that these measures will result in extra repayments for borrowers.
We welcome the proposal to abolish redemption fees and give greater freedom of choice with regard to insurance. However, the societies claim that that will lead to a reduction in their income which cannot be offset by greater efficiency within their operations and will have to be passed on to the already hard-pressed borrower.
With regard to the proposal to allow borrowers to see the valuations on their properties the societies claim that those who carry out valuations on their behalf would find it difficult to insure themselves against third party actions if their valuations were found to be negligent. In turn that would lead to a rise in valuations costs which again would be passed on to the borrower by way of increased mortgage repayments.
I agree with the points the Minister made in regard to section 6. However, there is an underlying current, which is that mortgage payments will be increased at every turn. In replying I should like the Minister to explain what he foresees happening. Would he confirm to us that borrowers will not be faced with greater repayments especially in these hard times?
The position of building societies needs to be examined in the light of their changing role. This review of the Building Societies Act, 1976 has been undertaken with undue haste. The Minister seems intent on pushing ahead regardless of the resultant potential increase in mortgage repayments. Interest rates have risen in recent months and will rise again because of the implications of the deposit interest retention tax. The Minister must recognise this reality and also that mortgages constitute the single most important expenditure of 120,000 Irish families. I fear that the implications of these provisions will heap more increases on mortgagors. The Minister's window dressing exercise, his piecemeal tinkering with this whole area will not hide that fact. The effect of all of this will be that the basic mortgage rate will be increased so that a borrower with a £20,000 mortgage will pay more while someone else with a £50,000 mortgage will pay less.
The answer to the problems in our society today — in an atmosphere in which there is no confidence, when everything is going downhill — is to have a general election so that a party capable of governing would be back on that side of the House.
I would be an advocate of an approach to less Government interference within our economy. However, I recognise that, in Irish economic life, we tend to allow the original purpose of any agency to be lost. There is no doubt that the development of the building societies has been worthwhile but, when they assume such a size and importance within that economy, there is very little that can be done about it. Undoubtedly they have provided the necessary mortgage finance to fund a great deal of house purchase and building. But the major building societies have grown in such enormous proportions they now assume an importance within our economy about which any Government can do little.
This Bill constitutes a cosmetic exercise in which any Government of the day must become involved. Under the law of the land we must incorporate regulations regarding building societies to protect the ordinary consumer. In my opinion the passage of this Bill will not make one whit of difference to the operations of those building societies. I read of a survey carried out recently to the effect that the management expenses of Irish building societies on the whole are far greater per £1,000 invested than is the case with the major building societies in the United Kingdom. Apart from one Irish building society, namely, the Irish Nationwide. which has the lowest management expense ratio in the country, and which could compare with some of its UK counterparts, the others have large management expense ratios.
One of the purposes of this Bill is to abolish tiered interest rates, to abolish the societies' practice of charging redemption fees, to have the societies make available to house purchasers their surveyors' reports and allow a purchaser free access to any insurance company of his or her choice. However the reality is that the building societies will have to ensure a certain return. Anybody who has had any dealings with a building society will know that there are many charges involved in the execution of a mortgage, charges such as those in respect of insurance, surveyors' reports, legal expenses and so on. I anticipate that what will happen will be that building societies will get together in a type of cartel or on a nod and wink basis, when interest rates charged to mortgagors will rise. That is the reality of the building society world in Ireland. I presume the Minister has done his best over the past couple of months in an endeavour to hold down mortgage interest rates for borrowers but the building societies control such a large segment of the mortgage market that this strengthens their hands. It must be remembered that they compete for depositors' funds in the same market as the banks, insurance companies and indeed the Government. I am sure the Minister has come to realise that the building societies play such a dominant role in our economy, there is sweet damn all he can do about mortgage interest rates. I hope he will have learned that lesson when he comes to introduce further legislation with regard to building societies in the future.
Debate adjourned.