Dáil Éireann - Volume 251 - 09 February, 1971
Committee on Finance. - Housing Finance and Mortgage Interest Rates: Motion.
Mr. Clinton Mr. Clinton
 Mr. Clinton: 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.
Mr. Molloy Mr. Molloy
Mr. Molloy: It may be one factor.
Mr. Clinton Mr. Clinton
Mr. Clinton: We talk about cement which is a small element in the building of a house.
Mr. Foley Mr. Foley
Mr. Foley: You cannot build without it.
Mr. Clinton Mr. Clinton
Mr. Clinton: Of course not. I appreciate that. Timber for all the various purposes, windows, doors, floors and roofing is the big item but we also have tiles and so on. It has been freely admitted that the turnover tax has added £150 to the price of a house and if you deduct this from grants that have been very slightly increased, you can easily see that there has been no effective increase in grants for many years. Therefore, there has been no increase for many years in assistance to people trying to buy their own houses. This is another reason and a very good reason why we should have a careful look at housing finances and the difficulties people meet before first of all they can get acceptance.
Then you have the question of the valuing of the house and the system of valuing houses. You have the selling price which is one thing and you have what it would make on the market if you put it up but the council's valuer has a different idea and when he is valuing the house for loan purposes he downgrades the house very much so that instead of getting, say, an 80 per cent loan a person gets nothing like that because of the way in which the value of the house has been lowered. The building societies, generally speaking, give about 75 per cent—a better valuation, let us admit it. The building societies normally put a higher valuation on houses than do the local authorities.  The usual thing there is 75 per cent. In certain instances where they cannot go wrong the societies will go as high as 90 per cent where perhaps an insurance company steps in and there is a bond to ensure that there will not be any loss of payments. Then the larger amount can be secured. Those who cannot get this concession have to look for money from other sources to try to meet the deposit. It is an enormous headache for many people.
Anybody who has done any local authority work in the Dublin region is quite familiar with the difficulties with which people are confronted when they decide to buy their own house; having secured the borrowing facilities they know what the commitment means and are aware of the millstone they have put around their necks. Therefore, there is a very strong case—and I do not think any Minister for Local Government has ever tried to face up to this—for the subsidising of interest rates, subsidising them on a sliding scale for the various income groups. Another thing that has operated very much against people being able to buy their own houses is the fact that there has been no adjustment in the upper age limit for qualifying for loans. The limit has been left there as it is for years and years and it is quite unrealistic at present.
I have dealt with clause (3) mainly on the plea that the interest rates here for this type of borrowing are completely and absolutely excessive. I hope the Minister will intervene in this debate and tell the House why it is possible to borrow money for farming purposes at subsidised rates of interest—which I entirely favour—and why the same facility is not available to people buying their own houses.
Clause (4) of this motion states:
... to examine and report on the adequacy of the present methods of financing house purchase by building societies, insurance companies and other sources——
“other sources” I suppose covers quite a wide field and includes borrowing through the local authority from the Local Loans Fund——
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——
Of course, it is some 18 months ago since this motion was tabled and certainly that is out of date——
and on item (4) within 12 months from its inception;
That was giving a reasonable period within which this whole extremely important matter of housing finance could be gone into by the Minister and the Department. I am quite satisfied that on any fair assessment of the situation we would not just let the position drift as it has been drifting over the years. Before this discussion ends we might be told whether the inquiry promised by Deputy Foley and by the then Minister ever took place and what was found as a result of the inquiry.
The motion covers a very wide field of investigation; it is left deliberately open and worded in such a way that no aspect of the whole field of housing finance could not be investigated. One appreciates the hardships suffered by people, first of all, in their efforts to borrow money, and then having borrowed it, their efforts to meet these commitments, not knowing to what heights interest rates will rocket in the period during which they have to meet their repayments and it is extremely desirable that ways and means be found to overcome this fluctuating rate of interest. Even the building societies could find a way. I know they can say that they are borrowing money at the going rates and that if they are to remain viable and if they are to continue getting money they must charge the going rates, but if it is possible for the Agricultural Credit Corporation to operate on the basis of fixed interest rates, and also to have this element of subsidisation, then there is no reason why housing finance should not be dealt with in the same way.
It would be a great source of happiness, if I could put it that way, to people who have to get this sort of money if they knew everything possible was being done to ease the burden on them, but there is very little evidence that anybody is seriously  grappling with the problem which is an enormous one for many people. I hope the Minister will take a serious look at this motion which has been on the Order Paper for a very long time and which should have been discussed much earlier. It is always easy to put matters of this kind on the long finger and certainly the question of housing finance and the difficulties confronting people have been left on the long finger for far too long.
I hope the Minister will give his views on the whole system of finding money for house building and also on the problems facing people who are anxious to build their own houses. I am one of those who believe that ownership is very important, that the maximum number of people should be enabled without undue hardship to own their own homes and that they should be able, without endangering their health or the health of their families, to meet the commitments involved in the purchase of houses. The deposits which now have to be found are simply fantastic and the outlay required to meet these commitments is also enormous. So far there has been very little evidence of sympathy from any source for these people. It is overdue that sympathetic consideration be given to this matter.
Mr. L. Belton Mr. L. Belton
Mr. L. Belton: I wish formally to second the motion and reserve the right to speak later.
Dr. O'Connell Dr. O'Connell
Dr. O'Connell: On behalf of my party I support this motion. I put numerous questions regarding the increases by building societies to a former Member of this House when he was Minister for Local Government. When I asked questions about the authorisation for the increase of interest rates I was told it no longer came under the Minister for Industry and Commerce but that it had been passed over to the Minister for Local Government. I was assaulted later outside this Chamber for daring to question the Minister for Local Government on the increase in building society rates.
I thought building societies were established for the purpose of providing money for working class people to purchase houses. I did not understand  that the societies were making vast profits and that they were merely large commercial concerns who bombard the public night after night with their television advertisements. The amount they spend on advertising alone must be fantastic.
Under the present interest rates charged by the building societies a person who purports to buy his own house will never own it in his lifetime and anyone who borrows from the building societies at the present time can give up any idea of ever seeing the deeds of his house again. I am speaking now about a young man who has obtained the deposit and who gets a loan from the society. Therefore, we must ask the question; what is the purpose of having building societies?
I have already brought to the attention of the House the fact that building societies are lending money for purposes other than house purchase. The then Minister for Industry and Commerce, now I think the Minister for External Affairs, said there was not a significant number of such cases that he could bring to our attention. We were promised this inquiry as a result of harassing the Minister for Local Government but the inquiry was merely to put us off. Of course, we were remiss in not pursuing the matter further but we now take the Minister at his word that he will hold an inquiry and that there will be a result. He told us that he called the heads of the building societies together but that he could do nothing in the matter other than to have this inquiry.
At one time people on low incomes were in a position to buy their houses. However, these increases were suddenly announced without any warning and the people concerned became most alarmed when they found that their income would not permit them to pay the increased rates. I spoke to some people who wondered if they would be allowed to rent out a room in their house to help meet the extra charges but under the terms of purchase through the building society they are not allowed to do this.
The building societies get special tax concessions from the Government. By virtue of this fact they have a certain  responsibility. They are able to obtain a vast amount of money on deposit and not only are they assured of the interest rates but they control the fire and theft policies on the house and in addition they insist on the applicant taking out an insurance policy through their own agent. They control all these matters because the person who is seeking the loan will willingly go along with the society in order to ensure that his application for a loan is successful.
I have also found out that a person with a normal income has no hope of getting a loan from the building society. At the present time the applicant must have an income of approximately £40 per week before he will be considered eligible for a loan. I notice that the building societies are seeking more concessions with regard to tax. If they operate on their present commercial scale, purely from the profit motive, I do not consider they are entitled to any rebate whatever. On behalf of my party I suggest that we nationalise the building societies or, alternatively, that the Government should set up a national building society. It should go into competition with the building societies, obtain deposits and grant loans for houses. Having regard to the enormous profits made by the building societies, I think a Government-sponsored building society would be able to offer loans to people at realistic rates of interest.
The motion we are discussing suggests that a public inquiry be held in order “to examine and report on the adequacy of the present methods of financing house purchase by building societies, insurance companies and other sources”. I do not think our Irish insurance companies are playing their proper role in helping to finance house purchase. I found that many of my constituents who wished to obtain loans were not able to get them from Irish insurance companies. That is not good enough when those Irish companies get so many concessions as compared with the foreign companies. However, it is obvious that Irish companies are in a position to invest vast amounts of money in office blocks throughout the city. Not 200 yards away from this House one can see an office block of  gigantic proportions which is financed by an Irish insurance company.
The onus is on Irish insurance companies to provide money for house purchase. It is not good enough to say that it is only a British, Australian or other foreign company who will grant a loan but this is what is happening at the present time. I appeal to the Minister to look into this aspect of the matter. I remember speaking to a former Minister for Local Government and telling him about the problems with which people were faced in their efforts to obtain a deposit for a house. Incidently, in the last week I have carried out an investigation into the price of houses and I found that the lowest price for a new house was £4,700. I worked it out that a single man would have to save £15 per week for two years in order to provide a deposit for a house. I mentioned the problem a young man encounters in his efforts to obtain a deposit to the then Minister for Local Government, Deputy Blaney, and his answer was: “They are getting married too young nowadays”. He told me that he was 38 when he got married but this is not an answer to give to young people who wish to marry. It is not sufficient to tell our young people: “Do not get married and therefore you will not have to face this problem”.
We must do all in our power to ensure that these young people can obtain loans and if the Minister for Local Government is so concerned about housing he might seriously consider nationalising the building societies or setting up in competition against them. If he did this he would see clearly that young people are very anxious to purchase their own homes. Frequently a young couple who have a deposit come to me and say that the building society will not grant them a loan because their income is not high enough. Even when they obtain a loan the young couple will never own their home. It is time we had an investigation into this matter and established where the money is going. If public money by way of deposit is going into this, if they are getting the tax rebates, as we understand they are, if they are looking for greater tax concessions, I would want to know why and what  they are going to give in return.
Dáil Éireann 251 Committee on Finance. Housing Finance and Mortgage Interest Rates: Motion.