Thursday, 30 October 1986
Dáil Eireann Debate
Mr. Skelly: I welcome this Bill. It is a first step towards a radical overhaul of building societies. One wonders why it took so long to get here. Perhaps it was because neither the motive nor the person was there. Past Ministers had not the will to do it.
I do not wish to delay the House because I would like to see it go through and I think the vast majority of borrowers from building societies would also like to see it go through. I will, therefore, not go over the points mentioned by the various speakers or by the Minister. Much of this can be left to Committee Stage. I would add to some of the points made by Deputy De Rossa, many of which I agree with. The building societies, since their foundation, have operated with increasing arrogance. They were an elitist group who looked after themselves first and made loans available, under very restrictive circumstances, to members of the public who could meet the criteria laid down by them. There was a certain amount of what I would term corruption in the operation of building societies. Large depositors got preferential treatment. During the building booms the builders had tremendous influence over the building societies. They could direct house purchasers to certain societies knowing that they would receive preferential treatment there. In that way the societies contributed to gerrybuilding in the city, to bad planning and to badly built estates. During the sixties and seventies a person did not have much choice in selecting a house. In order to have a prospect of a loan purchasers had to go to estates where the builder had influence with a society and could almost guarantee a loan. Those people bought substandard houses and in the end we set up the national house building guarantee scheme to help borrowers. The societies also contributed to that sort of thing in the double solicitors' fees which drove people mad. It was intolerable to have to pay the building society's solicitor as well as one's own. The society's solicitor often acted on behalf of the society and on behalf of the borrower. If one was a friend to member of the legal profession  one could get a loan by going to a certain solicitor. It is well known in Dublin that if one went to a certain solicitor acting for a building society one would get one's loan. As Deputy De Rosa pointed out these people feathered their own nests. When I say this I am talking from experience. For years the building societies got away with this.
The building societies also had a very good link-up with so called property correspondents in the national newspapers, who would write glowing reports of the different housing estates and developments, without ever having seen the developments. They did not mind taking a reward in the form of cash or kind for these glowing reports. The sufferer in all of this was the struggling homebuyer investing his life savings in the biggest investment he would ever make. We all sat back while the establishment in the form of the building societies, the legal profession, the insurance companies and the engineers ripped off the public and squeezed the borrower for every penny they could get. Like other private and state agencies, through the power of money and PR they have been able to make glowing reports on their actions over the past two decades, as to how much they have contributed to our housing industry. They did not contribute for nothing. At every turn they squeezed money out of the people. Looking back through time one wonders how we sat back and allowed them away with it. That is one of the reasons I welcome this Bill.
Building societies have often flouted the Minister for the day in either not meeting him or embarrassing him by increasing their rates whenever they felt like it, and in operating a cartel. The ordinary people have been victims of this carry on. If I was a director of one of these societies I would not be proud of the way they have operated and I would not like to be able to say I was a close friend of one of the people who have stood on the ordinary people over the last decades. This Bill gives a measure of protection to the public.
The building societies also operated in a very selective manner in giving loans.  They laid down criteria which ordinary people could not meet. Before being considered one had to have a deposit with them, of varying amounts, for a year or two. People had to rely on the banks to get bridging loans. In effect, the building societies operated a filter system: a person must have a job of a certain status, he must be a certain type of person, he must dress in a certain way and come from a certain district. He would have to meet a whole string of criteria and then it would be who one knew and who might recommend one for a loan, and it would be an advantage if one had a friend who was a solicitor. We had this argument during the debate on the Criminal Justice Act when we tried to identify those people who would even know a member of the lay profession.
Things have changed in the past few years and the property market has gone down but in the good times the societies behaved at their worst and they did not help the ordinary person struggling to get a mortgage. I wonder what kind of criteria the societies will operate when they get into the area of bridging finance. The Minister in his speech urged the societies to behave in a certain manner and they said they would rather have a full discussion on all the things they were interested in before they would do what the Minister wanted. That is the way they have operated up to now and they have got away with it. The Government have now intimated that they are answerable to the people and are introducing legislation to suit the people and which will enable the building societies to operate in a business manner. The building societies were using a polite way of telling the Minister to get lost. It was obvious that Ministers would have to get tougher and face this arrogance head on, as the Minister has done in this Bill, in the steps he has taken in relation to tiered interest rates, redemption fees and so on. Will the cost of removing the building society's solicitor be passed on to the borrower, and will they try in their arrogance to drive a coach and four through this simple legislation which has a lot of spirit? This  is not arbitrary legislation. Rather, it is a nudging piece of legislation inviting the societies to act in a certain manner in the best interests of the people. This Bill is long overdue. I hope the response of the societies is generous, that they will see the error of their past ways and will try to operate in a manner which will benefit the community.
Mr. S. Brennan: I wish to make two points in regard to the Bill and to substantiate them. The first point is that we need a new financial services Bill covering the whole range of financial institutions, including building societies. The second point is that unless the national economic situation is taken in hand very shortly the availability of funds, not just for building societies but for all institutions, will be so short as to possibly create a mortgage famine during the next six months. I will substantiate that statement later on.
The Bill is seen in too narrow a context, it must be seen in a broader context of a background of major changes in the financial marketplace and in financial services generally. We only have to look at what went on in London with the so called “Big Bang” on Monday to see the radical changes which have taken place in financial institutions and in the financial marketplace generally. If people are still not convinced that revolutionary changes are taking place in the financial world, they only have to consider that the EC in 1990 will be attempting to introduce an open free marketplace for financial services throughout the Community. If you put what is happening in London side by side with events in Brussels it is quite clear that within the next couple of years we will be faced with substantial, revolutionary changes in the whole financial services industry. That is why I called for the publication of a financial services Bill covering the whole range of financial services generally.
 There are three aspects to all these changes. First, deregulation, the breaking down of differences between building societies and banks, banks and insurance companies and insurance companies and stockbroking houses. Such deregulation has taken place massively in London in recent days and is a feature of a modern financial services industry throughout the world today. Secondly, there is increased competition for deposits between the various institutions which is getting extraordinarily keen and has good and bad effects. There is also very rapid innovation, the application of new technology to the financial services area and the development of new financial products offered to the public under all sorts of guises. They are the dramatic and revolutionary changes which have taken place and they are all relevant to the legislation before the House today. The Bill should be looked at in the context of the dramatic changes taking place in the financial services industry both in the UK and here.
I am convinced that the consumers will gain from the current revolution in that they will probably get cheaper, more efficient and more flexible services because competition between the institutions will make them sharper which will, I hope, enable them to pass on more benefits to the consumer. I do not have any great worries about the deregulation of financial institutions generally or building societies particularly but, having said that, the country must make sure that it gains — apart from the individual investor — through increased employment and earnings in foreign exchange. All this requires a sense of direction and a strategic view of the role of building societies. My main criticism of the Bill is that it does not have a sense of direction or a strategic view of where building societies fit in. A hint of what is possible was given by the Minister for Industry and Commerce recently in his announcement about Shannon Airport and the possibility of attracting offshore institutions to that area. In making the announcement, which I applaud, the Minister gave us a hint of what is possible. However, the  broader view of the financial world is missing from this Bill and the vision attached to trying to open up international banking in Ireland does not come through.
I welcome a number of aspects of the Bill, abolishing restrictive practices, redemption fees, the requirement to use a particular insurance company and particular solicitors. These reforms are useful and one should not quibble unduly about them but they are marginal, minor changes. As long as we do not pretend the Bill is a major reform of financial institutions or the building society movement, then some of the measures are welcome although I retain the right to quibble about some details and to seek to amend certain sections. The attempt to abolish restrictive practices is welcome and that aspect of the Bill is consistent with the notion of deregulating financial institutions. It is an attempt to level the playing pitch between institutions and is consistent with the philosophy of what is going on in the financial world, the advent of more open and even competition for deposits between various financial institutions such as building societies, banks and so on. I have no problem in welcoming those aspects of the Bill, provided it is recognised that it deals with minor items. It does not do anything about interest rates or reforming the financial sector generally. It does not do anything about clearing up the difficulties between building societies and banks. They are small detailed changes which are welcome but they do not tackle the root problem of charting a strategic course for the financial services industry.
I also welcome the decision to allow new loans to be made by the building societies, although I suggest that the Minister should put a limit on this. Section 3 does not mention the amount of the total funds they can spend on new loans; it just says they may give non-mortgage loans. Perhaps it would be more sensible to allow them to do this up to 10 per cent or 20 per cent of their total funding and put a certain limit on the amount of non-mortgage activity in which they can participate. That suggestion might be worth  looking at in a positive sense because it is important that the building societies — whatever other areas they eventually end up in, banking, stockbroking or whatever — should retain the provision of housing finance as their main business. That is still a major and important requirement.
Over the last five years the share of mortgages financed by building societies has fallen from 68 per cent to 62 per cent of total mortgages. Their share of new savings has also fallen significantly as a percentage of the total. For example, the Bank of Ireland have recently taken over the Irish Civil Service Building Society and now provide certain banking services. The building society movement is decreasingly the provider of funds for house building. I called for a financial services Bill instead of this marginal one because a major question is involved. Banks are moving into the territory of building societies, for example, the Bank of Ireland bought the ICS and the ICS provide cash cards and are proceeding in the direction of opening banking services. Does it mean that if building societies become banks our banks will become building societies? Will they all be in the business of insurance and competing for deposits? Will the legislators be asked to act as referees while all that goes on?
The Government of the UK recently published a financial services Bill in which they tried to tackle the fundamental question as to who will do what in the financial world. The building societies in the UK are issuing cheque books, doing foreign exchanges and selling stocks and shares. If all that is happening in Britain I can see it beginning to occur here, given the close financial relationship between the two nations. It poses the fundamental question that is not referred to in the Bill, the relationship between building societies, banks and so on. The key question is, if banks are starting to gobble up building societies can they really object if the opposite starts to occur? Can we then say that they must fix interest rates in line with Government directives? That might be grand in theory but in practice, with the international money market as  it is, it would be difficult to see how any Government could do something like that.
Within a few years we will see British and EC building societies operating here. That again is not mentioned in the Bill. Foreign building societies will have to be allowed to operate here under EC regulations. If they start here in a serious way can we still attempt to regulate building societies in a real sense, given the intense competition?
These issues raise two questions: do the provisions in the Bill go far enough to permit the Irish societies to meet the challenges they will have to face or will they crumble under international competition; two, will there be enough supervisory controls there to protect the consumer from the winds of international money markets?
My conclusion is that the Bill is only a marginal one which does not address those fundamental issues — it only fiddles around the periphery of the building society movement. What we need is a financial services Act into which new banking institutions, building societies, the whole investment banking industry and stockbroking will be tied up by comprehensive legislation so that we can chart a course for all those institutions and bring them together in some form of industry. I estimate there are between 8,000 and 10,000 jobs possible in a financial services industry in Dublin alone provided we tidy up our act and pull the financial institutions together, so that instead of working against each other as at present we can get them to work for the nation and attract foreign financial institutions to establish bases here on our terms, obeying the regulations of the Irish Government.
In that way we can build in Dublin and the country generally a financial services sector which will provide employment. Why is it that Singapore, the Isle of Man and Switzerland have had and are rapidly developing major financial centres whereas we are languishing as an outpost to which capital would not dream of coming from other countries. Indeed some of our cash-flow, instead of coming  has been leaving the country in recent months. It would be far more intelligent if we developed a proper financial services industry so that we would be attracting money to the country instead of having it running out to areas that have attempted to build a financial industry.
The Bill is a major disappointment in that respect. There is a suggestion abroad that the Bill is doing something fundamental to tackle the financial services area, whereas it tackles only minor elements like solicitors fees and redemption fees.
I wonder about the supervisory powers of financial institutions generally. Should we start to tidy that up? For example, the building societies come under a number of different regulatory authorities. A building society in Ireland has to answer to the Department of the Environment, the Department of Industry and Commerce, the Central Bank, the Registrar of Friendly Societies and the Minister for Finance. There should be a streamlined way in which that could be handled. If we are to develop a proper financial industry here we must sort out that mess. It would be far more sensible to have one agency dealing with financial institutions instead of five.
The Honohan report, or some newspaper reports of what is supposed to be in it, refers to this and states that it is difficult and should be sorted out. Unfortunately, none of these issues is addressed in the Bill. Therefore, the Bill is a major disappointment. I have called for a financial services Bill to tackle all of those areas.
Such a Bill would give us an opportunity to benefit by the London deregulation known as the Big Bang. There are many opportunities there for Ireland. For instance, we could develop here as a base for international software, servicing the building of the financial centre in London which is becoming the third major financial centre after Tokyo and New York. We are close to London physically and financially and our Stock Exchange is connected with it. We should try to find out how we could move in association with recent developments in London. I  ask the Government to establish a special group to see how we can benefit from these opportunities in the financial services industry, one of the major growth industries. We should stop putting up cul-de-sac signs like the DIRT, the resident requirement for building societies and the resident property and wealth taxes. If you add these up they bring less money to the country than they drive out of it. Though they seem to fill some ideological niche, as national economic measures they are simply suicide because they say to international capitalists that they are not welcome here. International capital does not have to come here, it does not owe us a living, and it will not come if the wrong signs are up.
If the right signs are up indicating that we do not fiddle around with some of that ideological stuff, that we are interested in building a financially secure stable economy, that kind of money will come and we will be in a much better position to provide the kind of equality and equity we need. At present, in striving for some type of equality we are scaring away so much investment that we will all be equally poor and sorry to live here.
As a result of what Irish Nationwide have done in breaking ranks, the building societies will now be more dependent on the inter-bank market in setting their interest rates whereas until now they were not dependent on the open market in the same way. In regard to unit linked funds, gilts, and shares the competition for scarce deposits will become intense and in theory that should mean lower interest rates. In reality, if the institutions have to chase all the deposits they will be putting up their deposit rates to try to attract funds. That will be passed on to the household borrower as happened with the Irish Nationwide today. I am convinced there will be a mortgage famine in this country in the next six months. Without being alarmist in any way as that only makes the situation worse I want to say as calmly as I can that I am convinced that by January or February next there will be a substantial mortgage famine in this country. I will be very surprised if there is little or any  mortgage finance available. What has happened is that £1.5 billion has been chased out of the country by regressive legislation and unimaginative approaches to the financial marketplace by Government sources. That amount of money leaving the country means there is little or no money left at home to borrow. What are the financial institutions going to start doing at the end of this year if the outflow continues? They are going to start chasing the money at home. The only way they can get a bigger slice of deposits is by putting up their deposit interest rates. If they keep putting up their deposit interest rates they will have to pass on higher interest rates to the householder or investor. That is inevitable.
It is all very well to scream at building societies and accuse them of opening up offices all over the country, having lavish furnishing and too much advertising on RTE but it is marginal. It is at the very fringe of the fundamental argument about financial services. The real problem is that we have lost £1.5 billion and that loss is continuing. If money continues to flow out, the only way Irish financial institutions can get money in is to compete for the money that is left in the country. How are they going to compete for it? By putting up their interest rates. What are they then going to do? They are going to pass it on to the person who takes out a loan. The only solution is to stop that money leaving the country and the only way to do that is to take some imaginative steps. First, get rid of DIRT. Second, liberalise exchange control regulations. Third, develop a financial services industry by publishing a financial services Bill. We have got to show people that we want to keep that £1.5 billion here and that we are not scaring it off.
In reply to a question on the residential property tax, I was told that it cost £4 million to take in £3 million. DIRT might bring in £75 million. How much of the £1.5 billion was that responsible for scaring off? I dare say a lot more than £75 million. Let us look at the national  interest and not at some sectional interest where those with houses valued at over £65,000 pay an extra 1 per cent and let us sell the message to international capital and our own capital that it is welcome here. If that money stays here there will not be intense competition for deposits and if there is no intense competition for deposits, interest rates will come down. If interest rates come down, building societies will not be putting them up by 3 per cent as happened today.
The response to the crisis on interest rates does not lie in this Bill. It lies in a more sensible understanding of what goes on in the financial marketplaces. We will have a mortgage famine in this country in the next six months if we do not get action in the financial services area and the only solution is to produce in this House a financial services Bill.
Mr. Allen: Deputy Brennan made some valid points but some were more relevant to the Minister for Finance. I congratulate the Minister on bringing forward this Bill. The first lines of his speech made it clear this is only the first of a number of Bills that will be introduced to deal with the problems facing building societies. We have to accept the role building societies have played. Over the last ten years they have provided the finance for 150,000 new houses and that has to be acknowledged. The reason the Minister introduced this Bill was to eliminate some of the practices which have faced house purchasers down through the years, practices which no Government had the strength or will to tackle. They are set out in the Bill. The legislation being presented today is relevant to the needs of those who are buying houses and the nature of the Bill makes it relevant to the everyday lives of people because it affects them in a real way.
The role of building societies has changed from being a social one to one where as a cartel they are one of the major financial institutions in the country. I would like to refer to the 3 per cent increase in mortgage rates. The Minister must take more positive action. Too often in the past we have seen bank  interest rates dropping and the building societies dilly-dallying about reducing their rates. The haste in which one particular society has increased their rates by 3 per cent is indecent. This will put an enormous burden on many young people. Deputy Brennan raised some legitimate points which need to be tackled in the months ahead but that is for another Minister on another day.
The measures set out in the Bill with regard to restrictive practices are welcome. I wondered whether we had any Minister or Government with the courage to tackle what I term the all-powerful mafia of the building society cartel. I would go further and say that the treatment the media and public representatives receive when they question the work practices of the building societies and their legal representatives is disgraceful. Because of the way they have treated the public who have suffered as a result of the economic depression, I would put the building societies on a par with Shylock of the past.
I welcome the measures set out in the Bill to eliminate the over-representation of solicitors whereby there is one solicitor for the purchaser, one for the vendor and one for the building society. Over-representation arose because of a cosy arrangement between the Incorporated Law Society and the building societies. One building society who attempted to eliminate this practice some years ago faced heavy pressure from the legal profession. As a result this practice continues up to today. I welcome the proposal to eliminate it and I hope the Minister will ensure there will not be any way round the measure he is introducing.
I welcome the proposal to eliminate restrictive practices in relation to insurance. Building societies, through their massive financial resources, have attempted to gag the media and public representatives when this practice was questioned. Some months ago I questioned it and referred to the £1.3 million cream-off by the Irish Building Society for commission on insurance and set out my reasons why that practice should be eliminated by the Minister. I submitted a  second statement to the press but, because of a threat of a legal writ from a building society through a solicitor who happened to be a brother of the manager — that is the type of tie up we have to face — not only was the newspaper silenced but I was silenced. I have letters to prove that. The building societies have the resources to silence their critics and they have done it in the past and will try it again. I welcome the courage of the Minister to take on building societies.
I applaud the proposal in relation to surveyor's fees. Those fees were a heavy imposition on house purchasers who did not have any freedom to decide who should survey the house. Building societies imposed their will and the purchaser, who was paying the piper, never saw the report. That was an unfair and illegal practice but, thankfully the Minister is attacking it.
The Minister in the course of his speech told us that this was the first of a number of measures in relation to building societies. I hope he will investigate the other practices by building societies which were referred to in the Honohan report. I understand that the amount for management expenses this year will be £40 million, a figure that is totally out of line with expenses in Britain. The Minister for Finance should carry out an in depth investigation into the way building societies operate expenses. A sum of £40 million is outrageous and borrowers or investors do not have any way of questioning it except at what I would call rigged AGMs. When such matters are questioned real answers are never forthcoming.
The procedure for the election of board members should be investigated. The Honohan report points out that no person other than a board nominee has ever been elected to the board of a building society here because board members hold all the proxy votes. That unhealthy practice which is open to abuse, and has been abused, must be looked at. It should be covered by the Minister in his next piece of legislation.
I share the concern expressed by Deputy Brennan in relation to the pressure  on our financial institutions in regard to interest rates and I hope the Minister for Finance will take corrective action in this area. I view the Bill before us as the first step in the elimination of many of the restrictive practices building societies operate here. I hope the Minister, in conjunction with the Minister for Finance, will look at the restrictive practices operated by the legal profession in regard to house conveyancing and that the performance of the boards of directors and managements of our building societies are scrutinised in more detail.
The Minister referred to an old hobbyhorse of mine in the course of his speech, bridging finance. I estimate that bridging finance adds 10 per cent to the price of a house. Surely with a Law Reform Commission and a Minister responsible for this area we can update our property laws and eliminate some of the unnecessary practices in house purchases. An additional 10 per cent is a lot of money for house purchasers to have to pay. If there is the political will that could be eliminated. In giving building societies the power to provide bridging finance the Minister has a responsibility to set about eliminating a need for that finance. He has the power as far as local authorities are concerned. He can give power, by way of regulation, to local authorities to accept letters of undertaking from properly indemnified solicitors. Such a move would eliminate a lot of time and money in such transactions.
There is an onus on us all to set about changing our property laws to make the whole area of house purchase simpler thereby saving house purchasers a lot of money. We represent the ordinary person in the street, the person who is struggling to get money together to buy a house but such people are being ripped off left, right and centre by building societies, the legal profession and every professional body involved in house purchase and house construction. Such people are easy prey, easy victims. As politicians we have a responsibility to  eliminate those practices. Today the Minister took the first small step along a long road. I welcome the Bill.
Mr. Calleary: I agree with Deputy Brennan who said that the problems of the building societies are not dealt with in the Bill. In my view the Bill was born out of anger and frustration arising out of a disagreement between the Minister and one building society in particular. Deputy Allen appears to know more than the rest of us because he told us that this is the first of a number of pieces of legislation that will be introduced. The Minister should have dealt with all the problems concerning building societies in one Bill.
I agree with some of the provisions of the Bill and, like Deputy Allen, I have been suggesting them for a long time. However, its provisions will result in borrowers having to bear more costs. I welcome the provision in section 6 (e) in regard to societies arranging insurance through an insurer nominated by it. I wonder why the Minister is preventing building societies doing this when he, and his Department, operate such a system under the Small Dwellings Act. Mortgage protection policies for loans under that Act must be put through a broker in Dublin. What is good for the goose is good for the gander, what the Minister is abolishing in regard to building societies should be abolished in relation to the SDA loans. We discussed that matter at a recent meeting of the housing committee of Mayo County Council and many members expressed grave reservations about this new trend.
I will be one of those who will be caught by the decision of the Minister to abolish the tiered system if the abolition results in a rise in interest rates. Can the Minister guarantee that rates will reduce rather than lower rates being increased? If so we welcome the move but many borrowers will be caught by the abolition of the tiered system. It is unfair that the provision is to apply to one society.
Legal costs have been referred to. I do not see any reason for there being two or three different solicitors involved. That  change is welcome. Perhaps for present borrowers the change has come a little late but I welcome it on behalf of future borrowers. The Minister will have to take steps to ensure that costs are not passed on in a hidden way to borrowers. The Minister might confirm if this is the first of a series of Bills. Some of us do not believe it goes far enough and see it only as a response to a set of circumstances.
As regards the surveyor's report I have had considerable experience in this area. The surveyor's report was for the building society and was strictly private. It was an indication of what the actual value of the house was but it was not an indication of the worthiness of the house. If, as appears likely should this legislation go through, the report is made public to the borrower the surveyor will have to be extremely careful about what he puts into the report. In many cases the surveyor will err on the side of the report being of such a nature that the society will not advance money on the property.
I welcome certain aspects of this Bill. I agree with Deputy Brennan that it is only the tip of the iceberg. I would be glad to see the Minister bring in legislation which would put building societies into direct competition with the banks and which would give them the same advantages as banks enjoy. Since the cartel appears to be broken up now there will be greater demands for money. Competition will be intense and as a result the person at the bottom of the pile, the borrower, will have to pay the piper. One can understand the frustration of borrowers. As a result of the competition for money between the societies they will not know how much their repayments will be in any one month. One can understand the annoyance and anxiety that many families will experience in the coming months.
The 3 per cent increase announced by one building society is a phenomenal increase for those paying 9½ or 10 per cent. They will have to pay one third more than they paid before. Many families will be unable to meet the increased repayments. Constituents will try to get their loans restructured or try to get the  local authorities to take over the loans.
The Bill is a short one. Some aspects of it are welcome but others need to be looked at again. Deputy Allen dealt with the question of bridging finance which can cause tremendous problems for borrowers. If the number of staff in the Land Registry office was increased the various transfers could be dealt with quickly. Anything that could be done in this area would be welcome. Deputy Allen suggested that the Minister might be able to make an order in relation to local authorities. That would be far more beneficial than certain proposals in the Bill.
There are proposals in the Bill which we all welcome but there are others which might prove hazardous for the borrower. We must always think about the borrower. Some of the remedies the Minister suggests will not ease the burden on the borrower but will add greatly to his problems.
Mr. V. Brady: It is most unfortunate that this legislation has been created out of ongoing battles and disagreements between the Minister and the building societies. While we all agree that legislation is necessary to update their operations it is most unfortunate that we find ourselves in a position of non co-operation with the building societies which form an important part of our financial institutions. The Bill coincides with the announcement by one of the leading building societies of a considerable increase in their rates. As of now one cannot be too sure what the final increases will be. We are still awaiting further announcements, I understand, from the other societies. According to speculation it is expected that they will at least match the additional 3 per cent that has been announced by the Irish Nationwide Building Society.
The implications of these increases will be very serious for tens of thousands of householders. They will add to the average mortgage of £25,000 to £30,000 an average of about £60 per month. This must be a shattering prospect for the already hard-pressed families who have been making all sorts of sacrifices during  the past number of years. These have made every effort to provide their own homes in order to bring up their families in decent surroundings. They have not been a burden to any extent on the local authorities. Certainly, they need and should be given encouragement rather than being hit for six time after time, which is most unfortunate.
The Minister has been very harshly critical of the building societies for taking this action and whilst I do not for one moment wish to condone such a massive increase, which we all regret very much, nevertheless one must look at the background to the problem and the reasons for such major increases. The Minister must take a major responsibility in this matter, as the total mismanagement by the Government of the country's finances has resulted in the virtual collapse of confidence on the part of the investor in the financial market. This has driven general interest rates to record levels against inflation. Indeed, the interest rates of our commercial banks are at least double the bank rates of other European countries.
It is unfortunate that the Minister should have seen fit to pick out the building societies as his target. It was never admitted by the building societies that there was a cartel arrangement, but very few people believed that. The Minister must take some responsibility for the break-up of the mutual agreement that existed up to now between societies on their rates to investors and to mortgage holders. It is obvious that the societies see themselves under major attack from the Minister and have decided, for their own reasons, to take their own actions in order to compete in what is already a very competitive financial market.
The Minister did not exactly distinguish himself on radio this morning in what I can only describe as a dog-like fight between himself and the chief executive of one of the leading societies. That is no way for a Minister or a Government to behave. Certainly, it is not the correct way to go about seeking a satisfactory mutual agreement which, in the better interests of the mortgage holder as  well as being reasonably beneficial to the society, could have been arrived at. The fact that the commercial banks are moving into building society business has not helped, either. There is the major threat of an incursion into this country by foreign building societies, which will cause only further chaos in a market that is already undergoing serious difficulties.
It was most reprehensible of the Minister on radio this morning to accuse a particular executive of mismanagement in his company. That sort of carry-on is most irresponsible — unethical, indeed. It is part of the major bluff being carried on by the Minister in an effort to hide the real causes of the problems which the country faces today. That is very evident in the financial structures and as far as lack of investment is concerned. It is very obvious where the real problems lie. The simple answer is that there is just no confidence in the economy any longer. People with money to invest are not prepared to take risks. It is most unusual for people involved at high level in major financial institutions to come out so openly as they have done in the past week or two to say that until a general election takes place the shortage of investment will continue, as investors no longer have any confidence in the Government's ability to rectify the problems which are wreaking havoc in our economy at this time.
The Minister's attitude to the building societies will not help the hard pressed houseowners and mortgage holders who today must be reeling with shock at the extent of the new interest rates on mortgages and literally desperately thinking how to continue keeping a roof over their heads. This must be a major headache and worry for very many people today.
Much more major legislation with regard to the role of building societies is required. It is about time that the Government introduced legislation covering the possibility of giving societies the right to enter into normal commercial banking. The societies since their formation have played a major role in helping people to provide their own homes and up to approximately 80 per cent of  all mortgages have been obtained through the societies. Those societies also have the very serious obligation to the public and the economy and should never forget their original objective when the societies were first set up. I am afraid that many of them are inclined to do so and I shudder to think how the massive costs of the advertising that a number of societies have undertaken in recent years, some quite unnecessarily, will affect the mortgage holder. There seems to be a competitive campaign — I would call it more than normal competition — of societies vying with each other in the advertising media. They must be spending hundreds of thousands of pounds overall on their advertising, promotions and sponsorships. I do not feel happly with many of such sponsorships and have expressed that point of view on a number of previous occasions.
The societies also must operate in the best interests of the depositors. The larger percentage of these have their investments with building societies for some reason. Society business has decelerated since the introduction of the DIRT tax, which has driven out of the country almost £1,700 million of savings, since its introduction last January. The building societies cannot be isolated from the movements in the money market and one must be particularly concerned at the threats that mortgage rates in the future perhaps will be based on the performance of rates on the Dublin inter-bank market. Inter-bank rates have always been much higher than mortgage rates and if the difference were to close to any considerable extent — even in a small way, that would be a more serious blow to mortgage holders in the future. The overall management of the economy by the Government is, of course, the vital cog as far as the financial institutions are concerned. It is indeed very obvious that any Government who run a current budget deficit of £1,500 million — which is the highest in money and percentage terms in the history of this State — must have a very serious and dramatic effect on the funding of that Government and of money markets. This, in turn, has a disastrous  effect on the small investor and as far as the building societies are concerned it also has a disastrous effect on the mortgage holder.
The managing director of one of our major societies recently said that the imposition of DIRT will, on its own, bring a ½ per cent increase in mortgage rates. It is ludicrous and dishonest for the Minister to say that such an increase would not be acceptable to the Government when in reality it was he and his Government who had been the major contributors to the difficulties in the money market, with consequential effects on the building societies and that sector in general. The Minister's criticism of the financial institutions is very much in contrast with the attitude of his colleague, the Minister for Finance.
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