I move amendment No. 17:
In page 25, subsection (1) (b), lines 28 to 33, to delete from and including ", unless a tiered rate" down to and including "Central Bank".
Section 24 of the Bill makes provision for the charging of tiered interest rates by building societies. I am not raising any objection to the charging of tiered interest rates other than in the context of housing loans.
There seems to be no rational basis for introducing this provision. It also seems that because of the other roles building societies are given there is no basis for providing for tiered interest rates — and I want to emphasise that building societies are not just placed in a position of equality with banks but in some areas are put in a special position and allowed to play roles that the banks are not playing.
In 1986, some building societies tried to retrospectively apply tiered interest rates to home loans and they tried to apply them to borrowers who had never been informed that there was any possibility that tiered interest rates would so apply. The 1986 Building Societies' Act prohibited building societies charging tiered interest rates to previous borrowers and prohibited the creation of new tiered interest rate loans. In section 24 the Minister is conferring power on a building society to again charge tiered interest rates. In his original press release dealing with this issue when the Bill was published the Minister suggested that if tiered interest rates were charged it would mean that borrowers of large sums of money, £60,000 to £70,000, would be charged higher interest rates than people borrowing between £20,000 and £35,000. The Minister moved away from that argument on Second Stage and briefly touched on the provisions of the Bill regarding tiered interest rates.
The Minister sees the central role of building societies as providing house loan finance, and all the other powers are adjacent and additional. I believe the charging of tiered interest rates poses a threat to mortgage finance and could result in borrowers having to pay unnecessarily high interest rates on housing loans, and could require the smaller borrower to pay a higher interest rate than the borrower of a larger sum. The first time house buyer who wants to borrow £25,000 or £30,000 from a building society may have no track record in the payment of mortgages or repaying loan finance. Because of that he may be seen by a building society as a higher risk than someone who has already established a track record and possibly borrowed £20,000 or £30,000 for his first home and is now into the £50,000 or £60,000 borrowing stakes.
There is nothing in this legislation to ensure that only those who borrow very large sums from building societies for the purpose of house purchase will be charged higher interest rates under a tiered interest rate system. There is nothing in the Bill to ensure that what the Minister suggested in his original press release will be adhered to.
There are no protections in the Bill for the house purchaser borrowing between £20,000 and £35,000 against tiered interest rates, and in the city of Dublin one buys a relatively modest house with borrowings of £20,000 to £25,000. There is nothing in the Bill to ensure that it will not be the borrower in that bracket who will pay the higher interest rate rather than the borrower in the higher bracket.
We all know the way banks work. If one has a triple A credit rating one may get a concessionary interest rate as opposed to someone who for example, has not, been involved in business for many years and who never got such a rating from the banks.
So, there is an inherent danger in all this. First, I see no public demand for the provision of tiered interest rates. I have never in all my years in public life had a single member of the general public coming to me and asking that powers be provided for building societies to charge tiered interest rates on housing finance. I see no merit in providing for it. The only demand for it is from some building societies, and we have a job to ensure that housing loan finance is made available at reasonable interest rates and that those interest rates are kept as low as possible within the type of market economy in which we operate.
I am mystified as to why the Minister feels there is a need to provide for tiered interest rates and how the Minister thinks the provisions contained in this Bill will ensure that it is only those who borrow large sums who will pay interest at the higher rate. I invite the Minister to point to a specific section or subsection in the Bill which so provides.
I am worried about this for other reasons, and this is where we head into the new powers that building societies have. Building societies are going to be allowed to build housing estates, to act as estate agents and as lawyers. Let us take the simple question of building societies building housing estates. If a building society build a major housing estate of hundreds of houses in a suburb in Dublin they would want to sell those houses and provide loans on a tiered interest rate system. With that system, if you buy a building society house you pay a lower interest rate than if you buy a house built by a different developer. Is there any protection in the Bill to ensure that will not happen? I would ask the Minister to clarify that.
In the context of commercial loans might it not be the case that the building society would provide housing loans at a lower rate to those to whom they have provided a large commercial loan? The tiered interest rate system may work in such a way that you get a concessionary housing loan if you have done business with the society in a commercial area but a higher interest rate is payable on housing loans to everyone else. I do not see the demand for the provision of a tiered interest rate system for building societies. The previous Government banned the creation of tiered interest rates on housing loans by building societies. Deputy John Boland, the Fine Gael Minister at the time who dealt with this matter, prevented building societies from providing for tiered interest rates for exising or future housing loans. I see no reason the house purchaser should be required to pay a higher rate than is desirable and I see no means of ensuring that if you provide tiered interest rates it would only be the large borrower who would be, in a sense, penalised and required to pay a higher sum.
I formally propose amendment No. 17 which states: "In page 25, subsection (1) (b), lines 28 to 33, to delete from and including ", unless a tiered rate" down to and including "Central Bank"." I formally propose amendment No. 18 which states:
In page 26, between lines 3 and 4, to insert the following subsection:
"(3) If a member of a society to whom a housing loan has been made is charged by the society a tiered interest rate in contravention of this section the following provisions shall apply, namely—
(a) the member shall not be in breach of the terms of his mortgage if he does not pay to the society the amount by which any payment due on foot of the tiered interest rate exceeds any amount due on foot of the lowest rate of interest applicable at that time to loans made by the society to members generally and the society shall not, by reason only of such failure to pay, be entitled to exercise any remedy against the mortgagor which is otherwise conferred on it by the law, and (b) the member shall be entitled to recover from the society any such excess paid by him as a single contract debt in any court of competent jurisdiction.
These amendments tabled by Fine Gael would effectively prohibit the creation of new tiered interest rates.
This provision is seen as another assault by the Government on the borrower and the house purchaser. The Government have already reduced the tax allowance on mortgage interest rates from 90 per cent to 80 per cent. The Minister is now presiding over a situation where mortgage interest rates are being increased by 1 per cent and are likely to increase even more. At the same time he is allowing building societies to create a tiered interest rate system which may directly impinge not simply on the large borrower but on the first time house buyer. I would warn the Minister to tread very carefully in this area. Recent statements made by him in this House on the housing area generally indicate that the Government have in mind to further reduce in the next budget the mortgage interest rate allowance made available to house purchasers. I would invite the Minister to tell the House that, if this Government are still in office next February, they will not further reduce the interest rate allowance available to home owners on mortgage repayments.
The Minister has clearly signalled in this House implicitly in comments he made some weeks ago that the Government are now intent on a further attack on the mortgage interest rate allowance. It is my prediction that, if they are still in office at the next budget, they will reduce the mortgage interest rate allowance from 80 per cent to in the region of 60 per cent. With inflation now rising, interest rates increasing and with the Minister trying, by legislation, to create tiered interest rates, the approach by the Government is a direct attack on home ownership and on those who have arranged their financial affairs in such a way that they rely on the fact that they have certain legislative protections and tax allowances to allow them meet their mortgage repayments.