asked the Minister for Finance if he will now reduce the interest rate chargeable on loans to local authorities for house building or for financing private house building.
Ceisteanna—Questions. Oral Answers. - Housing Loan Interest Rates.
12.
The reasons for the decision to increase the Exchequer lending rate were given in my reply to a debate on the Adjournment on 30th March, 1971. Nothing that has happened since that date has affected interest rates in such a way that the rate for Exchequer lending could be reduced.
Surely if there is some small drop in international interest rates, people buying houses in this country should be entitled to some advantage from this change in the economic climate?
The decrease in interest rates announced by the banks applies only to certain kinds of loans and overdrafts. The effect of the reduction in the rate is much more immediate on short-term borrowing, but we are dealing here with long-term borrowing and there is no immediate effect on borrowing of that nature. The present position is that the rate in question here is being subsidised by the State to the extent of ½ per cent. As I indicated on the Adjournment Debate in relation to this matter, it is my desire and intention to reduce this rate of interest as soon as it is possible to do so, but this is not possible at the moment.
I should like to know why it is not possible. Everybody knows that money is being invested in building societies and if the trend is for a reduction in interest rates why should the most fundamental borrowing rates, namely, the rates you pay when you borrow to have your own house, not be affected and why should there not be a reduction? Is it Government policy not to have a reduction? Does it suit the Government not to have a reduction?
I have already indicated, I do not know if Deputy Donegan was listening——
I was listening.
——but I will say it again in case he was not, that the reduction in interest rates recently announced affects short-term borrowing; it does not immediately affect long-term borrowing.
Yes, in principle it is true that bank overdraft accommodation is meant to be short-term but everybody here knows that the truth is that overdraft accommodation is long-term in 90 per cent of the cases. That disposes of the Minister's argument. Why then should there not be a reduction in interest rates as applied to repayments on houses bought through building societies?
It appears as if I will have to spell it out a little further for the Deputy. As the Deputy knows, or should know, the rate in question is governed by the rate at which the Government borrow long term and the latest borrowing by the Government, the most recent National Loan, was at a rate of nearly 10 per cent.
Is the Minister aware that the local authority building rate to applications for SDA loans is 9¾ per cent and 10 per cent in some areas? Will he not therefore agree that this rate continues over the 35-year period irrespective of what may happen in time to come? Will he agree that despite his statement that the recent National Loan cost 9¾ per cent the net cost to the State, having regard to income tax and sur-tax deductions, would be in the region of possibly less than 6 per cent? If he agrees with that type of calculation, which I think is correct, would it not be feasible to try to encourage people to build their own houses by reducing the local authority interest rates. The Minister need not tell me that he is losing one-half of 1 per cent.
The answer to the first two parts of the Deputy's supplementary is "yes" and to the second two parts "no".