LCR12815

Subject:
Dispute concerning the Bank's House Loan Scheme limits.

Recommendation:
5. The Court has considered the submissions made on the issues
arising from the review of the house loan scheme. It has not
found it possible to suggest any principled basis for such a
review as changes in the major variables i.e. salary levels and
property prices, do not appear to be directly related, at least by
any short or medium term economic factors. Neither it would seem
are the parties able to agree on the inferences to be drawn from
official published data relating to changes in house prices.

The recommendation that follows is solely in respect of the
current review and the Court has had particular regard to what it
assumes was originally, and presumably still remains, the primary
purpose of the scheme, that is, to give members of the Bank staff,
who are first time buyers of property, access to a reasonable
range of housing in the Dublin area, while still allowing more
senior and better paid staff some facility to "trade up." In
neither respect, the Court feels, is it reasonable to expect the
Bank simply to follow the market, and this is especially the case
as regards the "trading up" facility.


The Court has drafted the amended table on the basis that a
further review will not occur for some time and in the hope that
by that time both parties will have arrived at a more satisfactory
means of amending the terms of the scheme in the light of changes
which will have occurred in the meantime.

To this effect the Court suggests that the Bank and the Union
examine the possibility of their agreeing on the appointment of an
independent professionally qualified adjudicator who could
recommend the changes required in the scheme to maintain its
utility in the market conditions then prevailing.

Taking the above factors into consideration, the Court recommends,
subject always to the existing prudential conditions, that the
Bank amend the terms of its offer as follows:-

Minimum Qualifying Salary - #11,250 pa Salary x 4.356 to max of #46,000
#11250 pa - #13,000 pa " " #48,000
#13000 pa - #16,000 pa " " #51,000
#16000 pa - #19,000 pa " " #54,000
#19000 pa - #21,000 pa " " #58,000
#21000 pa - #24,000 pa " " #62,000

More than #24000 #68,000

and that the offer so amended together with the Bank's undertaking
to maintain the current interest rate for the time being should be
accepted by the staff concerned.

Division: Mr O'Connell Mr Brennan Mr Walsh

Text of Document__________________________________________________________________

CD9091 RECOMMENDATION NO. LCR12815

INDUSTRIAL RELATIONS ACTS, 1946 TO 1976
SECTION 67


PARTIES: CENTRAL BANK OF IRELAND

and

MANUFACTURING SCIENCE FINANCE

SUBJECT:
1. Dispute concerning the Bank's House Loan Scheme limits.

BACKGROUND:
2. The claim concerns approximately 350 clerical and
administrative workers. Between 1981 and 1988 the workers
concerned have enjoyed a preferential rate house loan scheme which
was based on a multiple of salary ranging from a multiple of 4.356
times at the lower end of the salary scale to three times salary
at the higher ranges. All workers with at least three years'
service and at least 23 years of age are eligible under the scheme
(details supplied to the Court). The dispute arises from
discussions on certain terms of the scheme principally in regard
to the rate of interest and the size of the loans for which staff
at various salary levels can apply. Against the back drop of a
slump in new and second hand house prices in the period 1984 -
1987, and relatively buoyant salary levels over the same period,
the Bank claimed that the purchasing capability of salary-multiple
borrowing limits was excessive, and that the cost of funding the
scheme had grown almost 4 fold. Management requested discussions
with the Union in relation to lower limits with reduced salary
indexation. Following a conciliation conference in May, 1988 the
parties reached agreement on a new system of indexation based on
salary ranges. The new limits involved a reduction to a maximum
loan of #54,000 at the highest point and provision was made for a
periodic review of the limits in the context of salaries, house
prices and other relevant factors, the first review to take place
in January, 1990. The Union claims that fundamental to this
agreement was the understanding that should house prices/salary
trends be reversed the original borrowing arrangements or their
equivalent would be restored. In the period since 1988 the Union
claims house prices have increased significantly in the Dublin
area (in the region of 25%). At a meeting in January, 1990 the
Bank informed the Union that no increases were proposed and that


there was the likelihood of an interest rate increase (from 4 to
5%). The Union reacted strongly to this statement. However
following numerous meetings, the Bank made a final offer to the
Union on the 5th February, 1990 as follows:-

Salary Band Limit

9,300 - 11,000 40,000
11,001 - 13,000 46,000
13,001 - 16,000 49,000
16,001 - 19,000 52,000
19,001 - 21,000 56,000
21,000 + 58,000

The Union rejected the offer and made a counter proposal that
limits for salaries up to #14,500 be at a multiple of 4.3 subject
to a maximum of #60,000; salaries over 26,000 would give a loan of
78,000. The Bank rejected this proposal. Further discussions and
conciliation conferences failed to resolve the dispute which was
referred to the Labour Court on the 9th February, 1990. A Court
hearing was held on the 13th February, 1990.

UNION'S ARGUMENTS:
3. 1. The Bank should honour the terms of its agreement and
return borrowing limits to a level consistent with the
definitions and prudential considerations of the pre - May,
1988 scheme (details supplied to the Court). In the period
ending December, 1987 - end December, 1989 house prices have
increased by up to fifty per cent. There is the prospect of a
further substantial rise before the next review. At the same
time salary increases have been relatively small - a reversal
of the situation which pertained in the period leading up to
the last review. Because borrowing limits implemented in 1988
were not indexed directly either to salaries or house prices,
the reduction in the scheme's purchasing power has been swift
and dramatic.

2. The system of linking fixed borrowing limits to salary
band widths eg. 16,000 - 19,000 is inequitable. It implies,
that individuals earning 19,000 have the same repayments
capacity as those earning #16,000. The previous system based
on salary multiplies produced a smoother transition in
borrowing capabilities.

3. While house prices are currently increasing faster than
salaries, and this is projected to continue for some time to
come, a salary multiple system would provide some increased
borrowing capability with increases in salary. The structure
of the current band widths greatly reduces the link between
increasing salaries and higher borrowing capabilities.


4. Capacity to repay is a basic concern of any house loan
scheme and the 1981 agreement successfully addressed this
issue establishing prudential ratios based on salary
multiplies. It should be noted that servicing the cheapest
mortgage from external institutions would be approximately
twice as costly as an internal loan. In the case of the Bank,
repayments are deducted at source and the cost of servicing
the debt is substantially less to the mortgagee. It should be
noted that the Bank has had no incidents of house loan
defaults on the basis of capacity to repay.

5. The workers concerned have mandated the negotiating group
to take any action necessary in order to update borrowing
entitlements to take account of past and forecast house price
increases. The house loan scheme is the only significant
staff benefit available to bank workers. It is held as an
important benefit and the workers concerned are extremely
concerned about any development that undermines or erodes the
scheme's value.

6. The Bank's disregard for both the letter and spirit of the
1988 agreement has resulted in a strong reaction from staff.
It is reasonable to say that the standard of industrial
relations between the Bank and its staff has been on a steady
course of decline leading to a lack of confidence in
Management by the workers concerned. The value of the House
Loan Scheme Benefit would continue to diminish if the Bank's
proposals were implemented. The workers concerned are
determined to restore and maintain the value of the scheme in
current day values.

BANK'S ARGUMENTS:
4. 1. Despite the revision in May, 1988 the house loan scheme
operated by the Bank remains one of the most favourable among
financial institutions (details supplied to the Court). The
Bank is conscious that these institutions are in the business
of personal lending and that their perception of what is
prudent lending for various levels of income is highly
significant. The Bank's proposed limits at the lower end of
the scale are straining at the bounds of commercial prudence.
This problem would be accentuated by an interest rate increase
which will become necessary if commercial rates increase
further.

2. The Bank is convinced that it is both impolitic and
imprudent for its Scheme to provide loans significantly in
excess of, or on significantly better terms than those
available to staff in other financial institutions. The
Bank's offer on loan limits sought to give some further
benefit to those in the middle to lower bands both by reducing
the salary ranges in these bands and increasing the loan
limits, where first-time buyers in new family circumstances


are most likely to arise. Even at these levels, the Bank
would feel increasingly conscious of the need to scrutinise
applicants details to ensure that residual take home pay is
not imprudently low.

3. Conversely the Bank can see no justification for further
increases in the higher limits in relation to staff needs at
that level, in particular where the need was not the purchase
of a first house but for trading up and home improvement
purposes. The overall size and cost of the Scheme will
require a more rigorous approach to such non-essential
applications.

4. The Bank cannot accept that increases in house prices, per
se, can justify increases in limits beyond the bounds of
prudence or fair comparison with other institutions. If
pressures in the Dublin housing market place a burden on bank
staff, as on other members of the public, it cannot be
overlooked that the Bank Scheme already places them in a
privileged position in terms of the size and cost of loans
available.

RECOMMENDATION:
5. The Court has considered the submissions made on the issues
arising from the review of the house loan scheme. It has not
found it possible to suggest any principled basis for such a
review as changes in the major variables i.e. salary levels and
property prices, do not appear to be directly related, at least by
any short or medium term economic factors. Neither it would seem
are the parties able to agree on the inferences to be drawn from
official published data relating to changes in house prices.

The recommendation that follows is solely in respect of the
current review and the Court has had particular regard to what it
assumes was originally, and presumably still remains, the primary
purpose of the scheme, that is, to give members of the Bank staff,
who are first time buyers of property, access to a reasonable
range of housing in the Dublin area, while still allowing more
senior and better paid staff some facility to "trade up." In
neither respect, the Court feels, is it reasonable to expect the
Bank simply to follow the market, and this is especially the case
as regards the "trading up" facility.


The Court has drafted the amended table on the basis that a
further review will not occur for some time and in the hope that
by that time both parties will have arrived at a more satisfactory
means of amending the terms of the scheme in the light of changes
which will have occurred in the meantime.

To this effect the Court suggests that the Bank and the Union
examine the possibility of their agreeing on the appointment of an
independent professionally qualified adjudicator who could
recommend the changes required in the scheme to maintain its
utility in the market conditions then prevailing.

Taking the above factors into consideration, the Court recommends,
subject always to the existing prudential conditions, that the
Bank amend the terms of its offer as follows:-

Minimum Qualifying Salary - #11,250 pa Salary x 4.356 to max of #46,000
#11250 pa - #13,000 pa " " #48,000
#13000 pa - #16,000 pa " " #51,000
#16000 pa - #19,000 pa " " #54,000
#19000 pa - #21,000 pa " " #58,000
#21000 pa - #24,000 pa " " #62,000

More than #24000 #68,000

and that the offer so amended together with the Bank's undertaking
to maintain the current interest rate for the time being should be
accepted by the staff concerned.
~
Signed on behalf of the Labour Court
John O'Connell
___________________________
30th April, 1990. Deputy Chairman
T.O'D./J.C.