Housing Finance Agency Bill, 1981: Committee Stage.

Question proposed: "That section 1 stand part of the Bill."

Mr. Raphael Burke

This section states:

1.—In this Act—

"the Agency" means the Housing Finance Agency;

"borrower" means a person to whom a loan described in section 5 (3) of this Act is made and includes the successor in title of the person to whom such a loan is made;

"the Companies Acts" means the Companies Acts, 1963 and 1977;

"house" includes any building or part of a building used or suitable for use as a dwelling and any outoffice, yard, garden or other land appurtenant thereto or usually enjoyed therewith;

"housing authority" means a housing authority within the meaning of the Housing Act, 1966;

"the Minister" means the Minister for the Environment.

This section is important when one considers what is defined in it. My first question is: why is there a need for such an agency? Yesterday Members on this side in the course of some very good contributions expressed concern about the area of housing. As a party we decided not to oppose the Second Stage and we did so not because we saw great merit in the new agency but because we viewed the agency as irrelevant. Our view is that an injection of funds to help the construction industry is needed at this stage.

An Ceann Comhairle

I apologise for interrupting the Deputy but he must confine his remarks to section 1, the definition section.

Mr. Raphael Burke

I am attempting to do that. I am dealing with the definition and why we need the agency.

An Ceann Comhairle

What the Deputy is saying would be more appropriate to section 2.

Mr. Raphael Burke

I am anxious to set the record straight with regard to our decision not to oppose the Second Stage. Last night, when concluding, the Minister seemed to cast reflections on our decision in relation to that. The Bill is not the vehicle that will provide much-needed funds for the construction industry or house loans. If the Government were serious they could provide the extra money rather than setting up this agency. I will make my points about the agency on later sections. I am anxious to point out that our decision to agree to the passing of the Second Stage was to highlight the irrelevancy of the agency rather than an enthusiastic welcome for its establishment.

Mr. Calleary

Do I take it that existing urban councils are considered to be "housing authorities" as defined in the section?

Minister for the Environment (Mr. P. Barry)

I suppose I should not have last night, and I do not do so now, question the reasons why any party vote for or against any measure in this House. That is entirely a matter for the party concerned. I merely put an interpretation on what I thought were the Opposition's reasons for not opposing the Second Stage. I fully accept the point made by the Deputy and I acknowledged last night — I am not sure if Deputy Burke was present at the time — the value of yesterday's debate. I am not sure that everything was entirely relevant to the Bill but I valued the contributions and I made an offer, which I hope will be taken up by the Opposition, that when the White Paper on housing is published in the spring we could arrange between the Whips a one-day debate on housing problems generally. I learned a lot yesterday and I am sure that many more Members would have liked to contribute to the debate.

In reply to Deputy Calleary I should like to state that the reference to "housing authority" in the section is to the 41 authorities which operate a house purchase loan scheme under section 19 of the Housing Act, 1966 — that is, county councils, county borough corporations, borough corporations and three urban district councils, Athlone, Dundalk and Bray.

Mr. Calleary

Do I take it that under the Bill an urban council such as Ballina Urban District Council which has been operating a loan scheme will not be able to operate a similar scheme under the new agency?

Mr. P. Barry

If they had been operating such a scheme, yes.

Mr. Calleary

They did operate such a scheme and carried out all the investigations. May I take it that they will still be in a position to do that?

Mr. P. Barry

If they operated an SDA loan scheme then the answer is yes. I am not sure if that council operated such a scheme.

Mr. Raphael Burke

In the course of his speech yesterday the Minister said that it was envisaged that at full operation the new scheme would replace the local authority loan scheme. A very important part of housing finance here has been the existence of the SDA loans scheme. Most young people if they had first choice would go for such loans because they borrow at a fixed rate of interest, make fixed repayments and they know from the outset the amount of their repayments until the mortgage is paid off.

Contrast that with the type of loan that it is envisaged this agency will provide. The loan the agency will provide is fixed as a proportion of a person's income, going up year after year. I gave an example yesterday from a table produced by an eminent economic journalist in the Irish Independent, Mr. Rapple, in which he showed that, using the system that is envisaged, on a 25-year loan, taking a man on a salary of £5,700 per annum at this stage and taking inflation in the third year down to 10 per cent which, with the policies of this Government, is unlikely although they will not be in office in the third year, the repayments over the 25-year life of the loan would amount to £140,000 on a £20,000 loan. Contrast that with the loan that is provided at present under the SDA scheme which has been a central feature of housing finance for so many years. That is the scheme that this Minister and this Government now intend to scrap. The Minister in his speech yesterday said:

It is envisaged that, at full operation, this new scheme will replace the local authority loan scheme.

The SDA loan provides the ideal situation for a couple or for a single person starting off. It means that one knows from the very first day exactly what one's repayments and one's interest rate will be for the life of the loan. Twenty two per cent of all house buyers are single people and we can judge this Government's commitment to the provision of funds for housing by their actions last July. On 23 July Deputy Barry, the Minister for the Environment, came into this House. It was the week of the three budgets. We had a budget on the Tuesday which raised the level of inflation to figures that we had not seen for a considerable number of years and which was contrary to everything that had been included in the Fine Gael policy document, the Labour policy document and the infamous Gaiety Theatre document. In the Tuesday budget VAT was increased from 10 to 15 per cent. From midnight on 21 July there was a price increase of 2p on spirits, 2p on beer, 4p on cigarettes. There was an increase in the price of wine. The unfortunate motorist was savaged once again with an increase of 4p per gallon on petrol, 4p on road diesel, 8p on LPG. Excise duty on cars and motor cycles was increased from 40 to 50 per cent. Road tax was reintroduced. There were stamp duty changes, bank levies, price increases consequent on the tax increases, increased Post Office charges. On the Wednesday of that week there were further increases in respect of the ESB and so on. Then on the Thursday the Minister for the Environment came in here with a measure which was the greatest act of discrimination by any administration for many years. It was going back to the Victorian mentality. When every administration had been introducing legislation to remove discrimination against women in the workplace and from as many aspects of Irish society as possible this Minister announced that he was removing the entitlement to mortgage subsidy from single people. The Minister himself said in his speech that 22 per cent of house buyers were single people.

Mr. Leyden

Would the Minister wear a badge? Single people need housing too.

An Ceann Comhairle

That is not permitted in the House.

Mr. Raphael Burke

The situation is that the Minister on 23 July removed entitlement to mortgage subsidy and to SDA loans from single people. That is a measure of this Government's commitment to housing. Now we have this Bill being rushed through this House. The first time I saw the Bill was towards the end of the week before last. The normal procedure in the House is that after Second Stage debate the Committee Stage, on foot of agreement being reached between the Whips, is taken a week or two later, thus allowing time to reflect on the measure. In the short period available on this occasion we have a number of amendments tabled for today.

We may well ask what is this Bill? It is merely a flag-waving operation on behalf of the Government in an effort to show concern for the construction industry and for young married couples trying to buy a house. It is a matter of shadow but not of substance. The nub of the legislation is the raising of funds from the private sector but that can be done anyway under the existing Board of Works legislation. So far as the provision of funds for the construction industry is concerned I would question the Government's commitment just as I question their commitment in so many other areas. I am concerned about that part of the Minister's speech in which he says it is envisaged that in full operation the new scheme will replace the local authorities loans scheme. While we are still at the definition stage I would like the Minister to clarify for the House exactly what his intentions are in this respect. Does he really intend to dismantle this centre-piece of housing finance of which we have had the benefit down through the years? Are the Government so blind as not to appreciate the advantages and the benefit that the SDA loans scheme has bestowed? Is he prepared to destroy something so precious by the setting up of this scheme and providing for the repayment of mortgages by way of a percentage of income?

Mr. Noonan

(Limerick East): Deputy Burke tells us that the Bill was accepted by the Opposition last evening on the basis that it is irrelevant anyway. To say that is to miss the whole point of the setting up of this agency. The Bill is a very good measure. It responds to a real need. Any Member of the House or of a local authority will know that a certain section of the community are not in a position to get loans to build houses in the present circumstances. They do not qualify for local authority loans at a certain level of income and their incomes are not sufficient to enable them to negotiate building society loans. I am talking about the people in the £8,000 to £9,000 bracket.

It is in response to that need that the Government have introduced this Bill. The scheme is by no means an irrelevancy. The need for it has existed for a long time. That is why the Bill has the support of everyone here despite the charade of opposition put forward yesterday.

Deputy Burke has challenged the proposed repayments scheme and to support his argument he has quoted figures arrived at by a well-known journalist. However, that journalist was predicting a rate of inflation during a 25-year period and none of us knows what will happen in the future. If one takes the present situation and thinks back to 12 years ago he will find that houses bought then at £3,000 are selling now at £30,000. This is a factor of ten anyway so that if one is working on a factor of ten and talking about a house worth £30,000 one is into very high figures in terms of 12 years hence. Therefore, even taking Mr. Rapple's enormous figures, one is talking about people having an asset worth twice the amount at the end of 25 years. I do not know who will be around to pay £300,000 for a house but that is the sort of figure we are talking of if we base our assumptions on the situation during the past ten years.

There is no point in trying to frighten people by quoting such enormous figures. Inflation will not proceed at that pace because one of the factors in inflation in the past number of years has been that too many people had a built-in vested interested in it. One of those sectors was young couples who had taken on big mortgages. If one took on a mortagage that was very high, one knew that inflation would ease the situation. Young couples had an interest in inflation and the greater the better, provided one could recoup one's losses by way of national pay agreements. That is what has been happening down through the years. People who bought houses ten years ago are paying back very little now. Indeed, many of those people are the ones who are buying second houses and renting them to people in the £8,000 to £9,000 income bracket who are not in a position to buy houses for themselves.

There is no need for me to go into the details of the scheme. We are talking about a very important measure. As the Minister said, this legislation is not a replacement for SDA loans but rather, an alternative.

Mr. Fahey rose.

An Ceann Comhairle

The Chair would point out that the section before the House is merely the definition section and that there will be opportunity for discussion on the other sections.

Mr. Fahey

We have grave doubts about the definition of the agency. I should like the Minister to explain the functions of this agency.

An Ceann Comhairle

That is in section 4. This section is merely dealing with the definition of the agency, the company, the borrower and the Minister. What you are saying is relevant to the other sections and if you are patient we will get through this section first.

Mr. Fahey

The definition of the agency is involved here because we have a doubt as to what the function of the agency is going to be. I think the definition is important from that point of view.

An Ceann comhairle

Its objects are explained in section 4 so you may raise it then or indeed you may raise it on section 2, because section 1 is merely concerned with definition of those words.

Mr. Fahey

I know it defines what the agency actually is but I think in the definition the function of the agency now seems to be very small other than the raising of money, that is why I was anxious to mention it at this stage.

The intention is that apartments or flats can be purchased.

Mr. Colley

I wanted to have that confirmed.

Mr. P. Barry

It is in the standard definition of "house" for the past three or four years.

It could arise on the appropriate legislation or at Question Time.

Question put and agreed to.

SECTION 2.

Mr. Mervyn Taylor

I am quite sure they can handle it. Can the Minister give an assurance that, as a result of local authorities operating this scheme, there will be no fiscal drag, as it were, imposed on local authorities. What I mean is this: we will have a situation here in which I presume the local authorities will draw the money from the agency, not in a block sum as it were but as they require it and then wait to give it out in future.

I would presume that the terms of the loan, as between the agency and the local authority, would involve fairly strict fixed repayments to be made by the local authority, on the due dates, to the agency because the agency, having to be self-financing, have their obligations to meet to the bond holders from whom their finance came. Therefore the situation could arise, as was envisaged in the Minister's speech yesterday, whereby deferral is provided for under certain circumstances by the mortgage holder. How will that work?

Question proposed: "That section 3 stand part of the Bill."

Mr. Mervyn Taylor

This company will be involved in raising millions of pounds and lending very substantial sums to local authorities and borrowers and a capitalisation of £100 is entirely inadequate. The company will have initial expenses because they will have to employ staff and obtain stationery, telephones and all the machinery necessary to get the company off the ground. It may take some time before the bonds are floated and before any moneys start to come from that source. That is the only source of funds the company will have. It seems to me, having regard to the size of what is involved here, that a more substantial capitalisation by the Minister would be appropriate to enable the company to set up and to meet the initial expenditures the company will have.

I would have thought that a capitalisation of perhaps £1 million would not have been entirely inappropriate, having regard to the extent of the money transactions in which this agency will be involved. If the agency had such a capitalisation it would have the big advantage of an initial supply of funds from which the agency could commence straight away to make advances and to get the scheme rolling very quickly without having to wait for all the legal delays and formalities involved in raising the bonds, issuing them, obtaining subscribers and so on. This is, after all, put forward as a commercial transaction which has to be self-financing. It would be laughable to have a company set up to deal with several million pounds with a capitalisation of only £100. I would like the Minister to have some further consideration of the capitalisation of the company.

Mr. Connolly

I have an open mind on what Deputy Taylor has said. I believe the Minister is going on the standard rules laid down for any ordinary company. That is the general criteria under which companies operate. I have some reservations in regard to company law but that cannot be dealt with under this Bill. It could be said that the formation of a limited company today should be looked at again in the overall context.

Mr. P. Barry

They can be seen advertised in the paper every day.

Mr. Connolly

I will not get involved in that. I have some reservations, as I said, in regard to company law in this respect. The amount of money a person can have to form a company is open to review, but that comes under another Department. The agency will operate under the present company law.

Mr. P. Barry

That is correct.

Mr. Connolly

I share Deputy Taylor's view.

Mr. P. Barry

I share Deputy Connolly's concern about the operation of company law. I consider that it is at least odd that a person can go into a solicitor's office or through a box number in a paper and set up a limited company. The articles of association are so wide that one can do anything one likes. One can rear elephants, engage in commerce, distil whiskey and anything one likes. This is the normal standard way for setting up a company by the State. I have no views about whether it is enough. I am advised by the Attorney General's office, the State Solicitor's office and by the Department of Finance that these are the normal provisions and this is the normal type of company. They are happy that this will cover everything we want to do and that it is the correct thing to do. Normally, in a case like this, when a company start up, they operate on an overdraft until cash starts to flow. I have the Telecommunications Investment Bill 1981 before me and this has exactly the same type of company.

Mr. Fitzpatrick

(Dublin South-Central): I agree with Deputy Mervyn Taylor with regard to the capitalisation of this company. The figure of £100 seems to be a very small amount in relation to the amount of money the company will be dealing with which will run into millions of pounds. The Department and the Minister should at least have looked at this in a different light. I know they are perfectly right with regard to the formation of this company. I see advertisements in the paper every day in the week with regard to £100 capitalisation. The Minister, in order to instil more confidence into this agency, should look at a figure more in the region of the amount Deputy Taylor mentioned. There are bound to be expenses at the initial stage when the company is formed. Personnel have to be employed and there is the usual setting up of offices and so forth which will require a certain amount of capital. I believe, by and large, more resilience would be given to the company if there was a capitalisation of a larger amount because the company can run into trouble from time to time and may require something to fall back on.

I believe we are starting from a very weak base in relation to a company which we require the people to have great confidence in. I believe the investors would like to see a company with larger capitalisation. I would like the Minister to have a look at this section to see if the capital should be increased for the benefit and resilence of this agency. I am quite convinced if he did this the image of the company would be improved particularly in relation to people the company will be looking to borrow money from and also for setting up the company. The Minister mentioned that the initial expenses will involve the employment of nine technical staff or other employees in this company.

Mr. P. Barry

I did not mention technical staff. I said the membership of the board would be between three and nine. That is not the staff.

Mr. Fitzpatrick

(Dublin South-Central): I thought the Minister mentioned the staff would comprise something of that nature.

Mr. P. Barry

I did not say that.

Mr. Fitzpatrick

(Dublin South Central): There will be expenses at the initial stage in relation to whatever number of staff will be employed. I agree with Deputy Taylor that the capital allocation should be of a large figure.

Mr. P. Barry

Section 10 of the Bill states that the company will be involved in £200 million, which is a fair amount of capital. The status the company will have is the signature of the Minister for Finance under all borrowings.

Question put and agreed to.

SECTION 4.

An Leas-Cheann Comháirle

The objects of the Agency stated in the memorandum of association shall include the following:

(a) to provide, by way of mortgage or charge, loans for the acquisition or construction of houses,

(b) to provide moneys to enable such loans to be made by housing authorities, and

I would like to contrast the objects of the agency as set out in this Bill with what was included in the Fine Gael policy document. The Fine Gael policy document said:

3. For House Purchasers Through Existing Agencies who have Deposit Problems: Top-Up Loans.

The pay-related mortgage will operate in conjunction with other sources of funding for house purchase. Fine Gael will arrange with building societies that a new pay-related top-up loan will bear far less heavily in the first few years than any other source of borrowing used to fund deposits shortfall.

This is an enabling Bill. The real meat is the regulations and directions to be given to the agency by the Minister, including this top-up amendment. Nowhere in this section is there provision for providing building societies with funds.

One of the big difficulties facing building societies down the years has been the availability of funds so that loans can be provided on request. In the Fine Gael policy document—and this was also included in the housing finance document issued by Fine Gael in October 1980—the clear impression was given that the housing agency, as well as making available money for loans to individuals, would also provide funds to help building societies with their cash flow problems and to eliminate the restriction of the six month-12 month period deposit regulation. That is not included in the objects of the agency, and it should be.

Perhaps on reflection the Minister will include it as one of the objects of the agency. One of the heartbreaks facing a potential house-purchaser, whether single or married, is the difficulty in getting a mortgage from a building society. A person opens a deposit account in a building society and is assured that if the money is left on deposit for six months he will get a loan. At the end of six months he applies for his loan but is told that because the in-flow situation is bad the rules have been changed and he must leave his deposit for 12 months or 18 months. This is a very undesirable procedure and should be stopped. When a society take a deposit and give a clear indication, if the money is left on deposit for six months a person will then get a loan, that should be the law of the land.

Mrs. Geoghegan-Quinn

I am getting confused as time goes on. When the Minister moved the Bill he said:

It is envisaged that, at full operation, this new scheme will replace the local authority loan scheme.

I understand that last night he changed that and said that both schemes would work in tandem. I would agree that you cannot expect the present staff of local authorities to cope with two schemes at different interest rates. I think the philosophy behind the Bill originally was that the finance for SDA loans, which now comes directly from the Exchequer to local authorities, was to be raised instead from private financial institutions. I wonder if the Minister would have a figure for 1980 and up to now in 1981 of the amount which was provided from the Exchequer for all the local authorities for SDA loans.

The Minister should remove the two-tier situation that local authorities are now being asked to operate. At present the most popular loan is the SDA loan because one knows at the beginning what one will pay at the end. Naturally people will opt for the lower interest rate when they are told that there are two schemes in operation. Various Governments in the past have asked the building societies to devote a certain percentage of their loan finance to new houses as opposed to second-hand houses. Does the Minister intend to impose the same condition on this new agency? I think it is a very good thing from the point of view of the construction industry to devote a higher percentage of money to new houses as opposed to second-hand houses. Has the Minister any views on this?

Mr. Mervyn Taylor

The fact is that local authorities have operated two parallel schemes in the past so that in that sense this is not a new matter. As well as the SDA loans scheme they have operated the low-rise mortgage scheme which operated on considerations different from those on which the SDA loans scheme operated. Therefore, local authority officials have experience of operating two parallel schemes but we have here a different situation because the two may be tied together, one on a first mortgage and the other on a second mortgage. However, there is one aspect of the repayments proposal that causes me concern and I should like the Minister to clarify the situation.

If we take the basic principle, that is, that the scheme must be self-financing, it follows that the agency raising its funds from the life offices will be committed to pay them a certain rate of interest on an index-linked scheme. The agency, not having funds from any other source, will have to nominate their rate of interest on the moneys lent to local authorities for intending mortgagors. At least in year one that will be fixed and obviously it will have to be somewhat in excess of the rate of interest that they will have to pay to the life offices because, in addition to having to cover their charges to the life offices, they will have to bear the cost of the administration of the scheme. That is all very well but it leaves a local authority in a situation in which they are committed to paying back the agency at a certain rate of interest, index-linked. Let us put that figure at 18 per cent. When the local authority lend money to a house buyer they will have to nominate a rate of interest that will enable them to recoup from the borrowers at least sufficient to enable them to pay back the agency. Otherwise there would be a fiscal drag on the local authorities and I do not think anybody is suggesting that that should be the case.

We turn then to the proviso that the mortgagor may repay the loan during a 25-year period on the basis of 18 per cent of his gross income for the previous tax year. This imposes an artificial element into the repayments. It may well be that any person availing of that proviso will be paying back to the local authority appreciably less than the local authority are obliged to pay to the agency. There fore, there is a gap and a shortfall and I should like the Minister to tell us where and when that shortfall will be made up and by whom, always bearing in mind the key basic fact that the agency must be self-financing.

Mr. Callanan

In answer to Deputy Leyden the Minister said, in regard to the assessment of farmers, that there is a criteria for them in respect of social welfare entitlement. That is so but the assessment is made either on the notional or on the factual situation. Which of these two means of assessment will be used in this case? Will every small farmer have to be assessed on the basis of factual income thus involving a social welfare officer visiting the farmer for the purpose of getting details of income?

My second question relates to the same matter as that raised by Deputy Taylor. I, too, would like to know who is to pay the local authority if they are at a loss as a result of an interest rate being fixed for a number of years?

Mr. P. Barry

The local authority will not be at a loss because the agency will be lending block funds to the local authorities who will collect the repayments and pass them back to the agency. It is envisaged that the agency will borrow money every year. They will not be repaying the money they borrow until the end of the term for which the money was borrowed. Therefore, they will have a very strong cash flow situation all the time and that will apply, too, to the local authorities who will be merely collecting the money and passing it back to the agency.

——they are bound to act accordingly. It is much better to give them the flexibility of applying different rules to different people in the various areas.

On the point raised by Deputy Geoghegan-Quinn, the figure she requested is about £101 million but included in that is a figure for home improvements. That is the only gross figure we have, but the figure for 1981 was somewhat less. Only those people earning less than £7,000 per year will have an option because those earning more than that do not qualify for an SDA loan. But they have a choice between borrowing from the agency and borrowing from a building society or an insurance company. I think that what will happen in this case is that a potential borrower will be presented with the details of both schemes and that staffs in SDA offices will become so expert in both schemes that they will be able to advise people as to which system would suit their circumstances best. There will be no question of trying to influence people one way or the other. They will look at each application individually and decide which scheme is suitable for that person. The type of person in the SDA bracket, whom the Housing Finance Agency would be suitable for would be young and in a job which may be poorly paid at present but which has good prospects.

Mrs. Geoghegan-Quinn

What about the percentage of money to be allocated for new houses as opposed to second-hand houses?

Mr. P. Barry

Mr. Connolly

I am glad to have that cleared up. There is no reference to it in the Bill. Repayments will be easy in the first few years but from then on they will get heavier. When rents of local authority houses are increased to keep pace with inflation there is a great hue and cry. The same will happen in regard to repayments of these loans. It has been said, and there is a difference of opinion about it, that total repayments on a loan of £20,000 over 25 years could amount to between £135,000 and £150,000. That is a possibility, depending on inflation. After the first few years borrowers will have growing families and they will have to provide for their education, and that will be at a time when the repayments will be heaviest.

Of course there is the position that the borrowers will have to pay for the establishment costs of this scheme, technical and legal fees. The agency funds will come from financial institutions and of course they will lend in the knowledge that they will be on a gilt-edged investment at, I understand, something like 18 per cent. Such institutions will be protected all the way and the borrowers will have to carry this. I think the Bill is shifting the emphasis of providing housing finance from the Government to the financial institutions in an indirect way and the borrowers will be paying through the nose.

I referred to the paperwork that will be necessary. At the moment there are delays of between eight weeks and three months in the processing of SDA loans. Now local authorities will be saddled with this new scheme and I suggest that the delays will be increased. I understood the Minister to say that he has had negotiations with local authority managers.

Mr. P. Barry

Not formally, just casually.

Mr. Connolly

The Minister also said that there is enthusiasm for the scheme among the officials. I hope he is right. We have had a different story about other State organisations. I hope I am wrong on this occasion. I hope any financial arrangement that is made will work well.

Mr. Acheson

May I seek clarification on a few points? What worries me is that some items in the Bill are so dangerously vague. We all know that people who want money rarely scrutinise the small print. When one is in the position of needing a house and must get the money from some agency or other, one is so jolly glad to get it one rarely scrutinises the small print. I would be afraid that borrowers would fall into this pitfall. I so not think prospective borrowers will realise the never-ending burden they are taking on themselves because the period is not set. The period is set only in so far as there is a 25 year period mentioned, but not set.

It appears that prospective loans could continue for ever, at least that is my reading of it. For instance, if a borrower becomes ill and goes on social welfare, what rule of thumb or what income is used then? What repayment must such a person then make? Also why is the loan calculated on gross and not net income? Why does the 18 per cent rate of interest remain over the 25, 30 and 40 year period? Why does that not go down?

Mr. P. Barry

No, not necessarily.

Mrs. Acheson

Well, what will it be? Will it go down to, say, five?

Mr. P. Barry

It depends on each individual case, but it could drop down, yes.

Mrs. Acheson

In the case of a borrower dying what income is assessed for the widow? Will the Department, the agency or anybody ensure that this person is able to meet the repayments?

Another matter is this. If people surrender their house to a local authority they can now, without any question, get up to £27,000. Heretofore they have lived in a local authority house greatly subsidised by the State. They are now handing that back and do not seem to be getting much except the £27,000. I do not think they will ever be able to see the daylight under 25 years. The Irish mentality is such that when one borrows one likes to know exactly the duration of the loan, the period involved. We are not great borrowers but we like to plan. For instance, people who buy a car like to know whether the repayments period is, say, three years or five years. With regard to the purchase of a house we like to be able to say: "I have only three years left to repay on my loan, which is reassuring as I am getting older". It appears to me that prospective borrowers will never know when their mortgage will be repaid, because all this is so dangerously vague. This is what worries me. I would hate to think of a borrower taking this on in good faith, when in need of a house, and being so glad to get the money. As a member of a local authority I would hate to think I had put a noose around their necks, for which they would never forgive me.

(Limerick East): This scheme is aimed at helping people who find difficulty in saving a deposit or in getting a loan. One of the great difficulties, especially for those constructing a house, is the length of time during which they may be on bridging finance. A house costing £25,000 to build would involve an interest payment of from £4,500 to £5,000 on bridging finance. It always strikes me as peculiar that in the case of an SDA loan a person can go to a bank with a letter signed by the county manager and use this as security for bridging finance. I fail to see why the money could not be given in the first instance by the local authority. I should like to see this new agency getting away from the difficulties of bridging finance. Some local authorities will make phased payments at present but others will not. It should be written into the conditions governing loans that payments will be made at intervals during the construction of a house, thus doing away with the necessity of bridging finance. This is one of the factors inhibiting people from building their own houses.

Mr. G. Mitchell

This Bill is anything but vague and the Minister's speech was very explicit and wide-ranging. One area outside the scope of the Bill about which I am not clear relates to the question of grants and whether grants will be taken into consideration in relation to the amount of funds made available.

The agency should be regularly accountable to the Dáil for their activities and I would ask the Minister to make provision for regular reporting to this House, either directly or through the Joint Committee on State-Sponsored Bodies.

Problems are caused in local authority housing schemes because of unnecessary delays in structural inspections and I hope the Minister will instruct local authorities acting as agents of the agency not to allow these unnecessary delays.

Mr. Raphael Burke

It gives me great pleasure to congratulate Deputy Acheson on her maiden speech, a significant contribution which augurs well for the future of what I know will be a long, honourable and distinguished presence in this Chamber. It is also appropriate that as a member of a local authority she should contribute to a debate on legislation which has significant implications for local authority structures.

The last speaker said the Minister was explicit in his introductory speech. Part of that speech was as follows:

It is envisaged that, at full operation, this new scheme will replace the local authority loan scheme.

The Minister has now done a complete U-turn on that. He has told us that it could be misinterpreted to signify the demise of the SDA loan scheme, but I do not think there is room for misinterpretation. It is a specific and explicit statement that the local authority loan scheme will go. The SDA scheme is sacrosanct. It represents involvement by the State in the encouragement of house purchase and should not be interfered with. Under this scheme a house purchaser would know from the first day that he had a fixed rate of interest and that his repayments would not change during the time of the mortgage. That must be contrasted with the situation which will exist for those borrowing under this new agency where repayments will be assessed as a percentage of income.

The Minister has given an assurance that there will be no question of difficulties regarding the employment of additional staff necessary for the local authorities to operate this scheme. This is another U-turn in relation to the embargo on recruitment to local authorities but in this case I welcome it and wish it were carried through to the fire services and other sections. The Minister said that he has spoken to a number of county managers and that they have welcomed the idea. Has there been any discussion with staff representative bodies regarding the implementation of this scheme? It appears that considerable discussion would be necessary and productivity and other questions would have to be considered. If he had not said earlier that this scheme would be operating by the end of January or early February the Minister could say that this question was somewhat irrelevant. Perhaps he will tell us now whether there have been any approaches or negotiations with staff associations?

Are we to see ourselves in a similar situation to that which we have at the moment in relation to the £9.60 transfer from husband to wife, where a scheme was publicised and introduced but now, except for the small number who are applying, would be inoperable because of staff difficulties within the service? I understand that the staff associations representing the officials who will be dealing with the implementation of the £9.60 have refused to co-operate in the pending additional employment of staff and productivity questions being clarified. Will we find ourselves in a similar situation with regard to this particular scheme and the extra burden it will impose on the local authority SDA loans sections?

We are discussing this Bill in a rushed manner without having the opportunity to reflect at length on it and without providing the Minister with the opportunity to put down amendments. I would like, for the benefit of the House, to remind the Minister that in another Bill he produced, up to 3.30 and 4 o'clock on Tuesday, amendments on the Rent Restrictions Bill which was guillotined through that night at 10.30. At that stage he had the opportunity to reflect on the amendments which would be required and the amendments that would improve the Bill. The problem in relation to this Bill is that it is being guillotined through and we have no time for contemplation of amendments.

Has the Minister had the time to reflect on the staffing implication in relation to the operation of the agency? We were told by the Minister of State at the Department of the Taoiseach on Tuesday that this Bill was needed to inject extra funds into housing immediately to tackle a major social problem. There could be an even further social problem created because of a lack of co-operation by the staff of local authorities. I do not intend to be irresponsible on this. I am merely setting this down as a marker. There could be a situation where the existing loans being provided by the SDA loans staff will also be unavailable because of lack of co-operation on the basis of the additional workload being created for them by the implementation of this particular new scheme which is being put forward. We should hear something from the Minister on this. Will he give us some indication on the staffing?

Mrs. Geoghegan-Quinn

I would like to get back to the points I made earlier and the Minister's reply when I spoke about the difficulty of working the two schemes, the SDA scheme as it is at the moment and the new scheme, by the local authorities in tandem and the problems that will be created. In my county the SDA loans scheme is virtually non-existent because single people are barred unless they can produce evidence that they are getting married. On production of that evidence the income of the spouse to be is taken into account with the result that when the two incomes are added together they are over the limit so they cannot qualify at the moment for an SDA loan.

Deputy Calleary spoke about giving a real choice to a couple who go into a local authority. One of the ways he mentioned, with which I agree, is that if you increase the income limit for the SDA loan and if you also increase the amount of the loans to make them comparable, this would get over the problem. Young people normally want to budget ahead. If they want to buy X amount of things for their house next year they have to be able to budget ahead and know how much money they can spend. Under this new scheme they cannot do that. Every time a person's income is increased the repayments are also increased so it is virtually impossible to decide this year what one can do next year. First of all, one does not know what income increase one will get and, as a result, one does not know what mortgage repayments one will be making. I understand that under the moneys available from the Housing Finance Agency single people are not barred. Is that correct?

Mr. P. Barry

Yes.

Mrs. Geoghegan-Quinn

That is an anomaly the Minister will have to do something about if he is going to offer a real choice to somebody who goes into a local authority. In the case of the redemption of a loan is there a penalty, as there is in the other lending agencies at the moment? It is fair to say the greatest difficulty young couples have at the moment is that in the first three or four years of any mortgage the repayments are very high and it is far more difficult to be able to make those repayments. The way to tackle that is the way it was being tackled with the mortgage subsidy which gave the relief in the very important early years of a mortgage. It is also fair to say at that particular time couples have least commitments familywise. Perhaps they have no family at all or the family are very young. It is as the family get older the expenses become greater. The educational expenses, the medical expenses and other expenses get greater. Once the repayments level off, as happens at the moment, people can cope with the increased expenses.

Under the new scheme people will not be able to do that because they cannot know this year what their repayments will be next year. If the Minister is serious about giving a fair option to people, as they go to local authorities, he will have to increase the income limit for the SDA loan and the amount of the loan that is available and he will also have to get rid of the anomaly about single people. This is virtually non-existent in my county at the moment because of the adherence to barring single people from loans.

I believe the Minister will find at the end of the day that he would have been better off if the SDA loans scheme was not tampered with and if we did not have the situation we will now have with the two things running in tandem and people being totally confused.

Mr. W. O'Brien

There is no dispute about what local authority officials think about the SDA loan. It served a great purpose and built many a house. What is the position today? If a person's income is in excess of £7,000 that person is denied an SDA loan. If a person earns less than £7,000 he can get £14,000. People are getting married very young nowadays. Many of them are getting married under 21 years of age. A house costs at least £22,000. What do those people do? They get £14,000 and they have £8,000 to make up. Where do they go? We have heard talk about bridging loans but even at the cost they were not available last year and people had to stop in midstream because the contractors walked out.

It appears to me that the Opposition have withdrawn their opposition to the Bill and are concentrating on the staffing and the services needed in local authorities. Not very long ago local authorities were faced with meeting repayments of reconstruction loans, group scheme loans, supplementary loans and they had to deal with the collection of domestic rates. We have now decided to abolish the agricultural rates so I cannot see any problem about local authorities being able to handle this. There has been a lot of emphasis on staffing and the trouble which might arise. Last year the offices of the Revenue Commissioners throughout the country were closed for eight months. Public representatives could not contact them. As a result the people went on strike. We had to get over that at great inconvenicence to the public.

If persons are old enough to vote and marry they should be allowed to enter into a contract. Here we are not talking about a contract which is binding all their lives; it is only binding for the period until they reach 21 years.

I did not realise Deputy Acheson was making her maiden speech. I join with Deputy Burke in congratulating and welcoming her to this House. She was right when she said people who borrow money do not look at the small print because they are so anxious to get into their houses. The only cure for that situation is when the supply of houses exceeds demand. When there is competition for houses among prospective customers the result is that house prices increase. Young people, because they are in too much of a hurry or are badly advised, do not always fully appreciate what they are getting into. This is an area we must all keep an eye on and try to correct by having so many houses that the customer has a choice.

When somebody goes to a local authority to borrow money to buy a house I hope the officer dealing with him will tell him the best type of loan for his situation and will not try to shove him into one or other category. He should present fairly to the applicant the benefits and drawbacks of both schemes and then the applicant can made his choice.

Deputy Acheson asked what would happen if somebody died. This situation arises all the time, no matter what method of financing is involved. Usually most responsible people take out a mortgage protection policy. Of course, there are some cases where such a policy is not taken out and a person may be killed in a car accident. In that case the widow would be better off if she had an SDA loan or a building society loan while a person who gets sick would be better off under this scheme. If a person is sick and has an SDA or building society loan his weekly repayments remain the same, but if he has an agency loan his repayments will drop to 18 per cent of his new income. There is a measure of protection there but it is the type of protection nobody would want to use because it would mean the breadwinner was sick or unemployed.

Deputy Noonan asked about stage payments. They can and will be arranged because this will help applicants avoid bridging finance. Deputies asked if they would have an opportunity of discussing the operation of this agency later. The annual reports of the agency will have to be laid before the House and then a Deputy may ask for a debate on the agency. Under section 6 if I give a direction to the agency as to how they should operate, I must lay that before both Houses. On that occasion, either House can have discussion on the operation of the agency.

I must be very bad at explaining things. I thought that point had been covered umpteen times. Nobody has to purchase a house this way unless he chooses to do so. The benefit of choosing this system is that the deposit is relatively low, very low in comparison with an SDA loan. In addition, the repayments in the first years are extremely low in comparison with repayments on a building society loan. One is not getting these things for nothing. If one does not pay now the debt is picked up and put forward on to the amount one owes in the future. If one does not sell the house that shortfall, because the amount one is paying each year will increase as one's income increases, will be gradually wiped out and one will come back to a very much lower percentage of one's income later on in the time. If one wants to sell the house in ten years' time, then one owes the amount of money on the books of the local authority or the agency as being the amount due for the house. If one buys a house now at £25,000 and in ten years' time it does not make £46,982 then, yes, one has to make up the difference because that is the debt one owes. You cannot expect somebody to run a line through your debt and say: "That is all right, Mr. Burke. You are a nice man. I will not take it from you at all." One goes into this with one's eyes open.

There are penalties attached to using this system but there are also advantages and it is up to an individual to weigh one against the other and see what suits him. If one goes back ten years and looks at a house that was then worth £25,000, it would now fetch more than £46,000. Of course under this system one would not be getting the same "profit" in inflation terms as the person who used the SDA or building society loans. The applicant makes his choice. We are presenting him with a fourth, fifth or sixth option; but for the vast majority of people it is the SDA loan, the building societies and now this additional method of financing.

Mr. Raphael Burke

What we have heard from the Minister is an admission of major defects in this scheme. We were told that the reason for the guillotine motion was that this was to meet a major social need. We are having a good debate and so far we have elicited a lot of information. However, this legislation needs time to be considered and we should have had an opportunity to consider it over Christmas. The Minister is now admitting major defects in the regulations to be set down.

Mr. P. Barry

On a point of order, I did not admit major defects in the operation of this. I pointed out that anybody who wants to buy his house under this scheme will have certain penalties that are different from the penalties one has under the Local Loans Fund scheme.

Mr. Raphael Burke

What we have here is not the Santa Claus we were told about on Second Stage. What we are getting now are the warts in the scheme or, to put it another way, we are at the Saint Stephen's Day rather than the Christmas Day stage. There is a major responsibility on the Government to explain to potential house purchasers exactly what the implications are of choosing the type of loan that will be available under this scheme.

The Minister spoke earlier about inflation and about increases in house prices and he implied that in the event of a sale, inflation would probably pick up the difference between the loan now and what it would be later. Based on the calculations I have been using, the position will be that if a person gets a loan under the system envisaged of, say, 20 years but if after ten years he wishes to sell he will find that instead of having to pay back £20,000 the amount due will be £46,982. This would be the position although a person had been paying on his house loan for ten years. People often find it necessary to sell one house and buy another because of being transferred to another area or for some other reason. The position I have quoted is the same up to the seventeenth year by which time instead of owing £20,000 a person would owe £58,013.

The legislation purports to be the salvation of the construction industry as well as of young people wishing to buy houses. I suggest that instead of talking about a weekly payment of £9.60 or of a 25 per cent tax rate, the Government might engage themselves in advertising this scheme and highlighting not only the position regarding the early years of the mortgage but the penalties that will apply to anyone wishing to sell his house in the first 17 years.

Mr. Flynn

The whole idea is crazy.

Mr. Raphael Burke

It is ludicrous and represents a vicious penalty.

Mr. Connolly

This section has wide implications. One can imagine the shock to a person on finding after ten years that he owes the sort of money Deputy Burke has been talking of. In my constituency I could visualise such a person presenting himself at Portlaoise hospital for psychiatric treatment. There is no point in anyone talking about what the value of a house would be after such a period. The position is that the buyer decides the market value. Let us assume that at the time of going on the market the amount due on a house is £80,000 but that it fetches only £60,000. There is a very serious problem in this regard. I do not know whether it would be open to the seller in such circumstances to declare himself bankrupt but he would be in a serious dilemma. While I was in the Department I explored the possibility of other means of helping to finance housing. I consulted with my colleagues, including the Minister, on the matter. A draft was prepared but I discovered that in what I was proposing I would be taking funds away from other areas in which they were very necessary.

This new financial arrangement may cause a big upheaval in the whole area of finance. However, the big problem I see is in regard to somebody who during the period of the loan may, for whatever reason, wish to sell but cannot get for his house a price sufficient to cover the amount that would have to be paid back to the agency. I shall be expecting either the Minister or the local authorities to explain to the people what are the issues involved in taking out this loan and the effect it will have on them?

Progress report; Committee to sit again.

Dáil Éireann debate - Thursday, 17 Dec 1981