FROM THE ARCHIVES:Shortly before the first oil crisis in 1973, the Fine Gael-Labour government recommended that mortgages be limited to £6,000 and apply only to new houses as the mortgage rate climbed to 11.25 per cent, as this story by Forbes McFall explained.–
JOE JOYCE
WITHIN THE next fortnight the building societies’ deposit and mortgage rates will be increased, and the government has recommended loans should be restricted to new houses and that no loan should exceed £6,000.
The Government has recommended to the building societies they increase deposit rates to 8% from 7% and raise mortgage rates from 10% to 11¼%. The new deposit rate of 8% would be equivalent to 12.85% gross, and it is believed the government will continue to give the societies a 1% subsidy. A mortgage rate of 11¼% would be a little higher than the U.K. rate, which rose to 11% (from 10%).
The chairman of the Building Societies’ Association, Mr. John J. Skehan, confirmed last night the government had proposed the rate increases but had agreed to defer a decision for a fortnight.
He said the societies were not going to rush into increased rates . . . “Unfortunately it might be a solution,” Mr. Skehan added.
The building societies’ current cash flow did not give enough leeway to accept loan applications and something had to be done to make them more attractive to investors, said Mr. Skehan.
Mr. Skehan suggested the Government proposal to limit loans to £6,000 and to new housing was aimed to encourage savings by those who were buying houses between £8,000 and £8,500 and paying a 25% deposit.
A survey in the past week by The Irish Times property section revealed 300 new houses, worth £2m., were lying empty in Dublin because there were no mortgages available on them.
The government is hoping a “freeze” on loans for old houses will reduce the spiralling price of old houses.
In general, the government’s recommendations appear to be “stop-gap”. The increased deposit rate and the retention of the tax subsidy will go some way towards stabilising building societies’ funds and possibly encourage a higher level of deposits. Yet the corollary of a 1¼% higher mortgage rate only aggravates the growing probability of a mortgage famine and a cutback on private building programmes, which would mean widespread redundancies.
The £6,000 loan limit (which may have to be revised upwards) and the restriction of loans to new housing is clearly designed, by its emphasis on lower income groups, to increase the quantity if not the quality of new housing. It is debatable whether the government’s measures will be enough to improve substantially its building record to date or meet the immediate plans of the building industry.
A spokesman for the building societies said it was “undesirable” that loans should be restricted to new houses, and it is believed the societies would welcome more radical initiatives from the government.
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