This is a short Bill the primary purpose of which is to provide a general statutory basis for the payment of subsidy in respect of the interest on building society loans. The Building Societies Act, 1976, consolidated and modernised the statute law in relation to building societies but does not contain any provision enabling the payment of subsidy on loans.
The Bill also provides for the following minor changes in the existing law relating to building societies. Section 12 of the housing (Miscellaneous Provisions) Act, 1979, enables a limited form of interest subsidy to be paid to building societies on certain loans which were issued by the societies and guaranteed by a housing authority. Section 4 of the Bill proposes to repeal section 12 of the 1979 Act, and any future subsidy payments in relation to such "guaranteed" loans will then be made under the provisions of section 2 of the Bill.
Subsection (3) of section 23 of the Building Societies Act, 1976, enables small amounts which are held in a building society in the name of a person who has died intestate to be released by the society prior to the grant of administration of the deceased person's estate. This provision has been helpful in avoiding hardship in certain cases, and section 3 of the Bill proposes to extend the provisions so as to enable a similar procedure to apply in the case of testate deaths.
As I have indicated, the primary purpose of the Bill is to provide for the payment of subsidy in respect of the interest on building society loans, and section 2 of the Bill will provide the necessary statutory basis. The section is drafted on a flexible basis and will provide a broad power to pay subsidy, leaving the details as to the type of subsidy to be prescribed in regulations.
The circumstances which gave rise to the recent subsidy and hence the present Bill were as follows. In April of this year the Irish Building Societies Association informed the Minister for the Environment that due to increases in interest rates generally and the adverse effects of their relatively unattractive interest rates on the nett inflows of funds to societies, it was necessary to recommend an increase in building society investment rates from 9 per cent to 10.75 per cent, standard rate tax paid. This would have necessitated an increase from 14.15 per cent to 16.5 per cent in the interest rate charged on home loans.
Following consideration of the report of a working group established to examine the matter, the Government decided to make available, on a temporary basis, a direct subsidy to societies for the purpose of enabling them to increase their investment rates from 1 May 1980 to 10.75 per cent without increasing the interest rate charged on house loans.
Reductions in interest rates generally since then have enabled societies from 1 October 1980 to bring their investment rates back to the level prevailing in April of this year, and the need for the subsidy no longer exists. Liability for subsidy amounting to approximately £7 million will result though, of this amount, less than £2 million will be payable in the current year.
The reductions in interest rates recently announced by the Associated Banks together with the highly satisfactory inflows of funds to societies in recent months would, one would have expected, have left the way open to building societies to effect reductions in their investment and mortgage interest rates. Senators will be aware that the Minister for the Environment, Deputy Raphael P. Burke, recently had a number of meetings with representatives of the Irish Building Societies Association to discuss this matter and that he stressed the Government's hope that there would be an immediate and positive response from the societies. I regret that their reaction to date has been negative.
I commend the Bill to the Seanad.