FROM THE ARCHIVES:Back in government in 1982 after a short spell in opposition Fianna Fáil found itself facing a rise of two percentage points in the mortgage rate, which would have brought it to 18.25 per cent. Frank McDonald reported on the choices facing the minister responsible, Ray Burke. – JOE JOYCE
THE POSSIBILITY of introducing a subsidy to forestall the expected rise in house mortgage interest rates is being considered by the Government, but no decision on the matter will be taken until after the Minister for the Environment, Mr Burke, meets building society chiefs on Wednesday.
The rise in bank interest rates, due to take effect at close of business today, was considered briefly at a meeting of the Cabinet yesterday. Sinn Féin The Workers’ Party has called on the Government to soften the blow to house-purchasers of the expected 2% rise in mortgage interest rate by introducing a subsidy or implementing some form of control over the interest rates charged by building societies.
Fine Gael spokesmen have remained silent on the subject, presumably because – when in Government – the party withdrew mortgage subsidies last summer and also because they cannot be seen to be calling for more Government expenditure so soon after urging a course of financial probity.
A commitment by the Government to hold mortgage interest rates at the present level of 16.25% would cost at least £20 million a year. One alternative, suggested yesterday by Mr Michael Fingleton, of the Irish Nationwide Building Society, would be to apply the subsidy to those in greatest need-first-time house buyers.
The building societies maintain that there is no alternative to putting up their interest rates if they are to remain competitive and there would appear to be no chance that the Minister for the Environment will persuade them to do otherwise when he meets the Building Societies on Wednesday.
Mr Burke, whose relations with the societies were somewhat strained when he was last in office, said yesterday that he did not see any reason for a huge increase in mortgage rates and he hoped to persuade them to hold off. “We will be talking about a number of possibilities on Wednesday, and I will be reporting back to the Government.”
The last time the Government agreed to subsidise mortgage interest rates was in 1980. To prevent the rate rising from 14.15% to 16.5% in May of that year a subsidy was introduced – at a cost to the Exchequer of £1.4 million a month.
When interest rates came down in October, 1980, the subsidy was withdrawn after the rate charged by the building societies was reduced again to 14.15%.
However, even when bank interest rates fell still further, the societies resisted pressure to reduce their rates by a further 1%.
This resulted in a lengthy public feud between the societies and Mr Burke.
http://url.ie/a77e