Vol. 440 No. 4
5 Mr. Barrett asked the Minister for the Environment if he has satisfied himself that the Building Societies Act, 1989 is capable of providing proper consumer protection to existing mortgage borrowers by ensuring that these borrowers are offered the same interest rate as that being offered to new borrowers; and if he will make a statement on the matter.
The Building Societies Act, 1989, has no provisions relating to the control of interest rates, which are determined by supply and demand in the market in the context of monetary policy as operated by the Cental Bank. By prohibiting the charging of redemption fees on variable interest rate mortgages, building society legislation has done much to ensure that existing, as well as new borrowers, benefit from competition, since existing borrowers cannot be prevented by prohibitive redemption fees from transferring their mortgages to lenders offering more competitive rates.
Is the Minister aware that the original purpose for which building societies were set up was to help individuals and couples to purchase their own homes? Will he agree that the Building Societies Act should cover the behaviour of building societies? I am not asking about the rate of interest but rather the behaviour of building societies. For example, existing borrowers are being charged a rate of interest of 7.75 per cent compared with a rate of 6.99 per cent being offered to new borrowers. On a £50,000 mortgage that amounts to an additional payment of £22.50 per month for existing borrowers. Will the Minister agree that building societies are no longer primarily concerned with providing loans particularly to first time house buyers but are becoming financial institutions? Surely the Building Societies Act is capable of ensuring that building societies provide the same rate of interest to existing borrowers as that being offered to new borrowers?
I appeal for brevity for obvious reasons at this time.
I am aware that two societies offer special below market rates to first time borrowers but the margin of difference is very small. Deputy Barrett will accept that this is probably the best regime we have had for a long time in terms of competition in the mortgage interest market. The building societies legislation of 1986 and 1989 has contributed enormously to bringing that about. It is not proposed to intervene further in that market because we can all recall the cap in hand system which hitherto was operated by lending agencies. We have long since departed from that and I am not aware of any special difficulties.
The Minister is misinterpreting my point. The point I am trying to make, and which apparently the Government is standing over, is a practice whereby existing borrowers are being made subsidise building societies to attract new borrowers, whether first time or new borrowers. The new borrower is being offered a lower interest rate than the existing borrower. Will the Minister not agree that that practice should cease and that if there is a fall in interest rates those who have had to carry high interest rates for a long period should avail of the lowest possible rate of interest and thereby get the same interest rate as that being offered to new borrowers? Is the Government prepared to stand over that practice or is it prepared to do something about it?
It is not clear from Deputy Barrett's question whether he is talking about variable rates of mortgage interest or fixed rates.
Both.
If we are talking about fixed rates of mortgage interest——
I am not talking about fixed rates.
This should not give rise to argument. Let us not forget there are four other questions to be dealt with.
If Deputy Barrett has some information, he may wish to pass it on to me, but I am not aware of any difficulties in the present market.
May I complete the question?
I cannot allow a debate now.
In respect of my own mortgage, I am being charged an interest rate of 7.75 per cent while the same building society is offering an interest rate of 6.99 per cent to new borrowers. That is not a fixed interest rate, it is a variable interest rate and the information supplied is incorrect.
I cannot delay unduly with any one question. It can only be to the detriment of the remaining questions.
As Deputy Barrett is aware, it is a long time since we had such favourable interest rates.
