I move:
That Dáil Éireann calls on the Government to hold a public inquiry for the following purposes:—
(1) to examine the causes giving rise to the increase by building societies in mortgage interest rates for existing borrowers;
(2) to report on the claimed need for increases and whether and when such increases can be reduced;
(3) 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;
(4) 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 12 months from its inception;
and Dáil Éireann is of opinion that, pending the inquiry, increases in mortgage interest rates should not be permitted.
This motion was tabled in my name and in the names of Deputies Patrick Donegan and Richie Ryan. Like many other motions, it has been on the Order Paper for a long time. The delay in taking motions of this kind is caused solely by the failure of the Government so to order the business of this House that motions can be taken within a reasonable time.
At the time this motion was put down there was absolute turmoil and uproar among people who had borrowed money from the building societies and who were faced with a substantial increase in their annual repayments. If my recollection is correct, there were two increases in the interest rates charged by building societies in very rapid succession so that people who had borrowed money from the societies suffered two shocks within a short period of time. It is, I think, fair to say that probably the biggest single transaction in the lives of most people is the purchase of a house. They examine very carefully whether or not they are likely to be able to carry this burden and meet the commitments involved. For some reason there was no increase over a number of years in the rate of interest on money borrowed from building societies and I believe people had begun to think that they had borrowed money at a fixed rate of interest, a rate of interest that would not change from the day on which they entered into the commitment until they made the last payment. They budgeted for a certain annual outlay, the outlay they met in the first year of the commitment. For a number of years there had been no increase and the impression was created, therefore, that the rate was a fixed rate. Added to that, they saw their neighbours borrowing from local authorities through the Local Loans Fund and they knew that borrowings from this source carried a fixed rate of interest and those entering into a commitment in this particular way knew exactly where they stood from the day they set out to pay for their house until the day the last payment was made on that house.
Some people were in the fortunate position of borrowing money from building societies at a very low rate of interest, 5 per cent, or possibly less. If my recollection is correct, their rate of interest was jumped from that to 8 per cent or 8½ per cent. This is where the big grievance arises. More recent borrowers had not to suffer this type of increase. On a loan of £3,500 from a building society the increase in the rate of interest represents an extra £35 a year. This is quite a substantial increase and I certainly saw every reason for the uproar when the increase was made. People were finding it difficult in other directions to meet their commitments and this extra sum was placed on them without any warning whatever. It was more than they were able to take lying down. There were protests. There were deputations to the Minister. I am glad to see Deputy Foley here because he took a very keen interest in this at the time—we were approaching a general election —and I think he gave public assurances that he would have this wrong put right; he was going to ensure that those aggrieved would have their grievance examined. We had a similar assurance from the Minister for Local Government at the time; he was, in fact, going to inquire into the whole business to see what concessions building societies were getting and whether the increases being sought were justified. We never heard the outcome of that inquiry. In fact, we never heard if the inquiry was ever held. Some of us believe it was so much eye-wash for the people at the time. Nothing was, in fact, done.
When I make these statements I am not to be taken as attacking the building societies. People were entitled to have the position aired and clarified and the Minister for Local Government at the time had the responsibility to let the people know how these increases arose and whether they were justified. That was not done. They were told this inquiry was under way and that the Minister would do everything possible to ensure that, if an increase were made, it was fully justified. We have no evidence that anything was ever done.
The increase was a shocking blow. I do not think the building societies should have been allowed to increase anybody's rate of interest by as much as 3½ per cent; 1 per cent might have been legitimate. An increase of 3½ per cent was outrageous. I know that building societies can make the case that those who had to pay this enormous increase were lucky because they had reached the point at which they must have had their houses nearly paid for and they were fortunate in that interest rates initially had cost them very little by comparison with the cost on borrowers today. Of course, all other costs have gone up, but here is something absolutely vitally essential, a roof over people's heads; it is something they must have if they are to get married and rear families. They must get the money necessary to purchase their houses at the lowest possible rate of interest.
The building societies make the case —it is understandable—that unless they are prepared to pay a competitive rate of interest on deposits they will not get deposits. With this we must agree, but we have seen a time reached at which building societies are looking around for things in which to invest their surplus money. They have got more than enough money. This is something that should be examined. Unfortunate borrowers got no enlightenment as to how or why these increases were taking place. The Minister for Local Government at the time pretended to show an interest; had he been really sincere he would have held an inquiry and he would have told people that they would have the result of that inquiry at a certain date. He did not do that.
The first clause in this motion calls on the Government to examine the causes giving rise to the increase by building societies in mortgage interest rates for existing borrowers. This is emphasised because new borrowers know the commitment into which they are entering and they enter it with their eyes open. The confusion that existed in the minds of those who borrowed at what they thought was a fixed rate of interest and the actual flat rate of interest in borrowing by another means gave rise to a great deal of the trouble.
Clause (2) calls on the Government to report on the claimed need for increases and whether and when such increases can be reduced. Did anyone ever hear of a society reducing rates? If, in the morning, bank rates dropped, would the building societies reduce the rate of interest they are charging? Replying on their behalf, I say they would not. They have never been known to reduce rates of interest. Surely this matter calls for investigation and for the establishment of a certain procedure, a procedure to be laid down by the Minister since the building societies enjoy certain concessions. Surely, from that point of view alone, there should be some control over the way they regulate and order their business. If we had a full public inquiry it would lead to a much greater understanding on the part of the borrowing public as to whether or not they were getting a fair deal, so to speak, and whether it was possible to give them a better one.
Clause (3) recommends the measures necessary to be taken to reduce interest rates or otherwise to ease the burden for borrowers if the interest rates are necessary.
There is an admission in this paragraph of the Motion that if this investigation was made it could be shown by the building societies that these increases were in fact necessary but that there was serious doubt in the minds of the borrowers and they were not in a position to probe it themselves and they got no assistance to do so.
Subsequent to the increase in the rates I had a long letter from a borrower who told me that when the increases came about he wrote to his building society protesting and said he would not pay the increases. He heard no more. He went on paying the old rate which was accepted by the society in question. He then wrote a letter asking when he would reach the final payment. He got no reply and after writing a few times, I think, he threatened to send a solicitor's letter. He then got a reply to the effect that he would never reach the end of the road, that he was only meeting the interest and that there was no element of sinking fund in what he was paying. I think I passed this to the Minister for Local Government at the time and I think he told me it was not his responsibility, that it was for Industry and Commerce, and I sent it to Industry and Commerce. I got no satisfactory reply from any source and there was nothing I could do to redress this man's grievance. He could go on as long as he lived, and his ancestors could continue paying this money but neither he nor they would ever repay the debt originally incurred. These are things that should not occur and building societies should not be allowed to let them occur.
"To recommend the measures necessary to reduce interest rates ..." If such an investigation indicated that it was not possible for the building societies to go on operating and make reasonable profits on their work, serious thought should be given by the Government to ways and means of bringing interest rates within the ability of the people to meet these commitments. There is nothing unusual about this: it is done in other countries; interest rates are subsidised. The Agricultural Credit Corporation, for instance, is now lending many millions annually at substantially subsidised rates of interest and at fixed rates. There is no change in rate from the day the money is borrowed until it is repaid. Is there any reason why this could not and should not be done for people anxious to build and own their own houses? Surely nothing is more essential than a roof over one's head? There should be subsidised rates of interest for people anxious to own their own houses. If this were done properly we could have a sliding scale of interest rates for people with various incomes and in this way you might shorten very considerably the list of applicants for local authority houses. In the long run the Government might not lose very much money.
I do not think that any Minister has taken his responsibility in this respect sufficiently seriously. They have allowed things to drift in regard to housing finance and no serious thought has been given to whether or not there is a better way of meeting this enormous burden. That is what it means in many cases for people who have to make repayments, those fortunate enough to qualify to borrow. That is the first obstacle; they must be accepted and must produce all the proofs that they will be able to make the repayments. This is an enormous burden. There are people paying £500 a year in repayments at present and some considerably more. There are people paying less for smaller loans. The whole question of building finance at present is really a farce, particularly in regard to borrowings from the Local Loans Fund.
We now have a situation in Dublin County Council where the applications are reduced by more than half mainly because a loan of £3,000 now is no good to anybody. Houses are costing £4,500 or £5,000. Where will the extra £2,000 come from? Who is in a position to save it? I believe that the person who is in the happy position of having an income sufficient to enable him to save £2,000 does not need a loan from a local authority and should be able to meet his commitments through a building society.
There has been no effective increase in grants for many years because of the increase in costs imposed by Government taxation on houses. The Minister raises his eyebrows; he never heard of such a thing as the wholesale tax; he never heard it admitted in this House that that put at least another £150 on to the cost of a house.
