Dáil Éireann díospóireacht -
Thursday, 16 Nov 1978

Vol. 309 No. 7

Adjournment Debate. - Mortgage Interest Rates.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): I am obliged to the Chair for allowing me to raise this all-important matter of the proposed increase in house mortgage interest rates and for giving me an opportunity to ask what steps the Government propose to take in regard to same. It is unnecessary for me to say that both house owners and those contemplating buying a house are alarmed by the increase in the cost of houses during the 18 months since the present Government came into power and, on top of that, by the proposed brutal increase in the mortgage interest rates and the effect it will have on people who already have houses, people who are contemplating buying houses, and the building industry.

The Government took office on the undertaking that they would make it easier to buy a house and cheaper to keep it. Not only have they not done that, but the possibility of having a house of one's own is rapidly getting beyond the capacity of the average person. When one gets a house it has become much dearer instead of cheaper to keep it, notwithstanding the abolition of rates. As part of their policy they have endeavoured to coerce as many people as possible into buying houses. That is good provided the houses are there at a reasonable price, and provided finance can be got at a reasonable price. They are coercing people into buying houses by building fewer local authority houses. That trend has appeared in many Government documents.

They are also pushing people off the local authority housing list by imposing a means test for the first time, with the result that many people who normally would be entitled to local authority houses cannot get them. They have also done away with the system whereby the employer's letter or certificate was accepted and, in lieu of that, they are demanding the income tax certificate known as P.60. Therefore, more people are coming into the private sector to get houses. There has been a dramatic increase in the price of houses since this Government took office. We could spend more time than there is at my disposal——

An Leas-Cheann Comhairle

It is not relevant.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): It is very relevant.

An Leas-Cheann Comhairle

On this question we are dealing only with mortgage rates.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): People have to buy houses.

An Leas-Cheann Comhairle

I have given the Deputy every latitude. He must deal with the question before the House.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): We could spend a long time showing that between 1977 and the second quarter of 1978 the price of the average house has increased, according to the quarterly bulletin on housing statistics issued by the Minister's Department, from £15,007 to £20,858. I could break down those figures, but I want to speak primarily on behalf of people who want to buy a modest house.

The price of an ordinary three bed-roomed house in what would not be called an affluent part of this city has increased from about £11,250 to £15,000, an increase of £3,750. Giving credit for the Minister's £1,000 grant, the buyer of such a house is worse off by £2,750 than he would have been before the Minister took office. If there were no increase in the mortgage interest rates, according to my information it would cost £28 per month more to finance that house than it would previously. On top of that, the mortgage interest rate is to be increased from 11½ per cent to 14 per cent, a crippling burden on house buyers and house owners.

I have been dealing with the cheapest type of house one can buy in this city. I am not exaggerating when I say the cost of financing an average house, and that is what counts, has gone up by about £10 a week since the Minister took office, with a pledge in his manifesto to make it easier to buy a house and cheaper to keep it. The price of houses has increased by 33 per cent according to the Central Bank Report which came out the other day, notwithstanding the fact that the price of housing materials has gone up by only 10 per cent. Is the Minister ashamed of that? Why has he done nothing to control house prices? Who is getting the enormous profits?

An Leas-Cheann Comhairle

This question deals only with an increase in mortgage rates. The Deputy cannot go over the whole field of house prices.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): This increase in the mortgage interest rate affects every extra £ a man has to borrow. That is the logical case I am making. If the Minister kept down the price of houses, this brutal increase in mortgage interest rates would not be so serious. There has been a huge increase of 33 per cent in the price of houses notwithstanding the fact that, according to official statistics, the price of building material has gone up by only 10 per cent. What is the Minister doing about that? It is a disgrace. Not only has the £1,000 grant been lost but the relief in rates has been lost.

An Leas-Cheann Comhairle

We cannot continue on those lines. The Chair allows these questions on the Adjournment on the strict understanding that the Deputy will speak on the question he is raising. The Deputy has not mentioned mortgage rates twice during the past 12 minutes. He has been referring to the £1,000 grant, to the cost of houses and all these other matters.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): It is the end result that counts.

An Leas-Cheann Comhairle

These other matters may not be discussed.

Mr. Keating

The Minister is well able to look after himself.

Mr. Barrett

In ten minutes?

Mr. Keating

He will have three years in which to answer.

Mr. Barrett

And more perhaps.

An Leas-Cheann Comhairle

It is by special permission from the Ceann Comhairle that these questions on the Adjournment are allowed and the Chair must ask the Deputy concerned to confine himself to what his question contains.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): With respect, I must relate the effect of the impending increase in mortgage interest rates to the increase in the cost of housing generally because both aspects are interwoven and inseparable.

An Leas-Cheann Comhairle

The Deputy is going over the whole area of housing costs, from grants to local authority housing and so on. That is not permissible.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): I moved away very quickly from the question of local authority houses. The increase in mortgage interest rates and the unexplainable increase in the cost of houses is putting a burden of an average of £10 per week extra on the shoulders of house purchasers. They should not be asked to bear such a burden.

Not only is this the situation but people seeking mortgage loans are not being facilitated. I am aware of a case concerning a man in his late twenties who, during a period of almost two years, saved £2,500 with a building society. He booked a house at £15,000 which meant that he needed a loan of about £13,000 but would have been able to manage with about £9,000. His application was turned down although he was in State employment and had saved so much money with a building society. Dublin Corporation are taking up to 13 weeks to process an application for a housing loan whereas the length of time involved used be only seven or eight weeks. Building societies have closed their doors so far as loans are concerned.

During the past couple of years mortgage interest rates have varied from between 9½ per cent to 11½ per cent and the proposal now is to increase the rate to 14 per cent. I understand there is no way in which an increase of this order can be avoided.

Mr. Barrett

The rate rose to 13.95 per cent while the Coalition were in office.

An Leas-Cheann Comhairle

The Minister will have an opportunity of replying. Deputy Fitzpatrick on mortgage interest rates.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): The Minister has begun to interrupt me. Obviously, he is trying to prevent me from talking. Between April 1977 and now there have been a number of mortgage interest rates. These have been as follows: 11½, 10½, 9½ and 11½ per cent and it is proposed now to increase the rate to 14 per cent. That is the reason I am here this evening asking the Minister to do something about the situation. He has shouted across to me that during our term in office the rate increased to 13.9 per cent at one stage. That may have been so but the Coalition took some action.

Mr. Kelly

Hear, hear.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): I am hoping that the Minister will be able to give me an undertaking that his Government will do likewise. Indeed, they would need to do more because the price of houses has increased considerably. There are two ways in which the problem can be offset. The Government can either subsidise the mortgage interest rates by putting money into the building societies so that they will be enabled to give the going rates on deposits without having to increase the borrowing rates—that was the type of measure taken by the Coalition—or the Minister can arrange with his colleague, the Minister for Finance, to reduce the amount of income tax that building societies are asked to pay. Many people think that because their investments in building societies are free of income tax, the societies are relieved also in this regard but that is not so. They pay what is known as a composite rate of income tax. If, for instance, they pay 7 per cent interest to the depositor they pay about 2.9 per cent by way of income tax. By either reducing the rate of income tax or abolishing it, the burden could be eased for the house purchaser. This might be a much better way of spending money than was the abolition of wealth tax in respect of the very wealthy.

An Leas-Cheann Comhairle

The Deputy may not bring in the question of wealth tax.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): I am merely telling the Minister where he may find the money to do as I suggest.

An Leas-Cheann Comhairle

The Deputy should stay on the matter before the House, the matter that he was granted permission to raise.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): I would not expect the Chair to detract from my time. That is a tactic reserved for the other side of the House.

An Leas-Cheann Comhairle

If the Deputy used his time in the way he indicated his intention of using it, the Chair would not be detracting from his time.

Mr. T.J. Fitzpatrick

(Cavan-Monagahan): How can the Minister explain the 33 per cent increase in the cost of houses when everybody knows that material costs increased by only 10 per cent and how can he expect house purchasers to shoulder an extra burden of £10 per week more than what they had to pay before he came into office? I trust he will be able to tell us of the steps he intends taking to protect the ordinary borrower against this crippling increase.

Minister for the Environment (Mr. Barrett)

I did not expect to hear a general housing debate as well as a debate on wealth tax. Such matters are not mentioned in the question before the House. I, too, have been reading reports in the press regarding pending interest rate increases on the part of building societies. This is a matter which concerns me just as much as it concerns Deputy Fitzpatrick or anybody else, but we must realise that any proposal to increase the rate must not be taken in isolation. Building societies are the main providers of mortgage finance, providing up to 70 per cent or even more of such finance and if they must meet the requirements of their members as well as assisting in the Government policy in regard to housing they must be competitive. They are in the business of attracting investment as well as making money available for private housing. They must be able not only to retain their existing funds but also to compete for new funds so that they can meet their requirements. It is necessary for them to keep their investment rate at a level which will generate a sufficient inflow of funds. In setting the level of their investment rate societies must take account of the rates being offered by other major financial institutions, more particularly the associated banks. Up to yesterday the bank deposit rates on amounts of up to £5,000 was 6 per cent, on amounts ranging between £5,000 and £25,000 it was 7 per cent and on amounts over £25,000 it was 7½ per cent. The societies' investment rate at present is 7 per cent. I should point out also, in fairness to the societies, that they did not increase their rates when the banks last increased their rates.

Last Tuesday it was announced that bank deposit rates were to be increased to 8½ per cent, 9½ per cent and 10 per cent respectively with effect from yesterday. Therefore, the minimum deposit rate being offered by banks at present is 1 per cent above the rate being offered by building societies. Traditionally it has at least been 1 per cent below the rate offered by buildings societies. The interest rates being offered by banks at present are linked with the minimum rate which applies in the United Kingdom. Deputies will be well aware of the fact that the UK rate was increased very substantially recently.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): We know that but it is poor satisfaction to some poor devil trying to buy a house. Will the Minister come down to earth.

Mr. Barrett

We are not responsible for what happens in Whitehall. The Deputy is not so naïve as to suggest that it has no bearing on interest rates in this country, so I do not have to go into that.

(Interruptions.)

An Leas-Cheann Comhairle

The Minister should be allowed reply without interruption.

Mr. Keating

The Minister should be as relevant as the Chair insisted we should be.

Mr. Barrett

Undoubtedly the building societies will be obliged to increase their investment rate to enable them retain their existing funds and to attract new funds. To what extent they will increase their rate and the effect this will have on their lending rate is not clear at this time because it has not happened. I have had no indication from them as yet on this matter though I understand, again from newspaper reports, that their association will be meeting soon to discuss it.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): The Minister's party promised to make it cheaper to buy a house and keep it.

Mr. Barrett

Therefore it would be very premature of me, or anybody else for that matter, to make any statement on the matter until the association have met, until such time as they have taken decisions on what will be their approach, what they will see as necessary in order to meet the present situation. After that they will be notifying me and the Minister for Finance on the matter.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): What will the Minister do about it if they are going to increase the rate to 14 per cent?

Mr. Barrett

We will give consideration to the case made by Deputy Fitzpatrick. That is not for me to consider; most of what he said was in regard to wealth tax and so on.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): I was only telling the Minister where to get the money.

Mr. Barrett

With regard to the situation, we are discussing it in a vacuum. We do not know what they propose to do in order to attempt to meet their needs. Deputy Fitzpatrick has been somewhat premature in putting down this motion.

Mr. Keating

The Minister is whistling by the graveyard.

Mr. Barrett

But he saw in it an opportunity to make some sweeping statements. I should remind him that between June 1977 and June 1978 the house building cost index rose by less than 10 per cent.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): And the price of the house went up by 33 per cent.

Mr. Barrett

But, during the first year of the Coalition Government the cost index rose by 36 per cent. There is a vast difference there. When the societies' borrowing rate went up to 13.95 per cent—which it was throughout most of the Coalition period—what action did Deputy Fitzpatrick and the Government of which he was a member take? Absolutely none, and now he expects me to say what action I am going to take about something that has not even happened yet. They were there for four years and took no action whatsoever.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): The Minister's party came into power on a promise to make it easier and cheaper to buy houses and keep them.

Mr. Barrett

They stood aside from the whole thing. Suddenly the Deputy comes in here——

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): The Minister's party came into power on that promise.

Mr. Barrett

We did, with 84 seats.

(Interruptions.)

An Leas-Cheann Comhairle

It was Deputy Fitzpatrick who raised all this.

Mr. Barrett

We are building houses, we will continue to build houses and make them available to the people who want to buy their own homes.

Mr. Keating

There were no qualifications in the manifesto.

The Dáil adjourned at 5.25 p.m. until 2.30 p.m. on Tuesday, 21 November 1978.