When the debate was adjourned I was commenting on Deputy Boland's allegation that the new arrangements with the banks and building societies will result in inadequate funds being available for house purchasers on modest incomes in 1988. The opposite will, in fact, be the case, as the public capital programme provision for 1988 will be £100 million and this, with the additional £70 million which will be available from the commercial agencies will be more than adequate to meet demand.
Deputy Boland asked me to outline the extent to which the Agency has been successful in replacing its short-term borrowing with long term conventional borrowing. In the year ended 30 June 1987 the Agency succeeded in raising £82 million by conventional borrowing. This borrowing consists of ten year foreign currency loans from Irish based banks and I am happy to say it has been raised at very attractive interest rates. The House will appreciate that it would be inappropriate for me to give specific details of the interest rates applicable to this borrowing due to the confidential nature of such transactions. While the Agency has significantly reduced its reliance on short term borrowing, the level of its short term borrowing is still unacceptably high, due principally to its expanded role in funding not only income related loans but also the new convertible loans and the traditional annuity or SDA loan. I can assure Deputy Boland that the Agency is continuing to make every effort to reduce its dependence on short term borrowing.
Deputy Boland commented that the 1988 Estimates did not reflect the fact that there were arrangements in train to transfer demand for house loans to building societies and other commercial institutions. The fact is that negotiations were going on with the commercial institutions about this matter but had not reached fruition at the time the Estimates were published. It would not, therefore, have been appropriate to assume the outcome of the negotiations at that time for the purpose of presenting a more favourable picture in the Estimates.
Deputy Boland suggested that there is a contradiction between the Minister's press release and a quotation in the Irish Press. There is no contradiction. The press statement simply stated that the public capital programme provision for house loans would be reduced. This is a simple statement of fact and it contains no suggestion as to how the saving would be used.
Deputy Boland and Deputy Gibbons asked the cost of the guarantee. The Deputies will appreciate that it is very difficult at this time to forecast with any degree of accuracy the expenditure which may arise under this guarantee, other than to say — as was said in the Minister's press release of 27 October — that the cost is not likely to be very significant. Experience in other countries indicates that this type of guarantee does not give rise to significant costs.
Deputy Quinn complained about the guarantee which he sees as minimising the risk of the building society or bank. This is not the case. Our guarantee will cover only half of any loss suffered by the lending agency and our exposure will be limited to half the amount by which the loan exceeded 75 per cent of the value of the house.
Both Deputy Boland and Deputy Quinn expressed concern about the requirement that applicants should first approach a building society or a bank before seeking a local authority loan. As both Deputies are aware the SDA loan scheme was always intended to assist those who were in need of housing and could not otherwise house themselves. Consequently, it has been a feature of the SDA scheme over the years that applicants should satisfy the local authority that they were unable to get a loan from the commercial lending agencies. I accept that this requirement may have been implemented to varying degrees by different authorities. The requirement that an applicant now obtain a refusal from both a bank and a building society is necessary in the light of the arrangement whereby the banks and the building societies have undertaken to contribute £70 million to the sector of the mortgage market currently catered for by the local authorities. In the absence of such a requirement there would not be an effective transfer of applications to these institutions.
I cannot accept the suggestion that local authorities should assess all applicants in the first instance. How could a local authority have access to the criteria used by each bank or building society for assessing applicants? It would inconvenience an applicant far more if he was assessed by a local authority, told to go to a bank or a building society, was refused by them and then had to return to the local authority. It would be preferable that he go to a bank or a building society first, so that when he arrives at a local authority he knows his application will be accepted and processed.
I must emphasise once again that these arrangements with a commercial lending agency will not affect a person's capacity to house himself. On the contrary, there will be more funds available in 1988 than would otherwise have been available. In addition, the borrower has a greater choice and more flexibility in choosing the type of loan financing most suited to his particular needs. I want to say that there were some teething problems in regard to the implementation of this scheme. These are being overcome and I am glad to be able to say that. If anyone has any problems in regard to it I will be only too glad to take them up with the various local authorities concerned.
Deputies Kitt and Roche asked that all loan applications on hand be dealt with by the local authorities. The position is that the local authorities are being instructed to pay all loans which were approved and to continue to process unapproved applications where they are satisfied that hardship would be caused by reason of the stage to which the application or the house purchase transaction had progressed. In practice, only applications which have recently been received will be referred back. It must be borne in mind that the loan commitments entered into at this time of the year will form a large part of the actual payments in 1988. It is important, therefore, to ensure that those who will get a loan from a commercial agency be referred to these agencies now so that the agencies can fulfil their funding commitments for 1988. I must emphasise that there were some teething problems in regard to that with the local authorities and I have tried to rectify them as best I possibly could.
Deputy Quinn asked what would happen where a lending agency agrees to give an inadequate loan. This would, of course, be a refusal and would be treated as such by a local authority. I want to emphasise that where a local authority decide on the reduced amount, as far as the applicant is concerned, if that is not sufficient, he can go back to the local authority. That can be counted as a very fair arrangement.
Deputy Boland referred to the introduction of variable interest rates for annuity and convertible loans. I cannot agree that a variable interest rate at a time of falling interest rates will be a disadvantage to borrowers. Indeed, since interest rates have fallen there have been calls to have the fixed interest rate at 12.5 per cent, which applied from 1978 until 1985, reduced for those borrowers on this rate. I have indicated that the variable interest rate will not exceed the rate charged by the building societies.
Deputy Boland stated that the agency only advanced £3.5 million in the first six months of this year compared to £78 million in 1986. This statement was very misleading as the £3.5 million related only to HFA loans which were approved to 1 July 1986 and paid in 1987. The agency's financing of loans in 1987 is through funds advanced directly to local authorities for on-lending to individual borrowers. The agency will advance about £95 million to local authorities for loans in 1987. This compares very favourably with their payments in 1986.
Deputy Gibbons inquired as to when the Housing Finance Agency will meet their own cost. This is a very good point and one to which I would like to be able to reply to with a degree of accuracy. However, as has been pointed out by Deputy Gibbons, the agency were established at a time of high inflation and when index-linked borrowing was attractive. This is not now the case and the agency have had to rely on conventional borrowing to fund income-related loans where the repayments of borrowers are income-related and are more easily matched with index-linked funding.
The cost of this is being met through the interest swop arrangement. As I stated in my opening speech, it is expected that on the basis of current interest and exchange rate trends and the increasing capacity of the agency to fund loans from capital repayments, the cost of the interest swop will decrease gradually over the years. It is not possible to say exactly when the agency will meet its cost. It should, however, be remembered that in the future there will be a return to the Exchequer on the funds which they are effectively investing in the agency on an index-linked basis.
Deputy Boland and Deputy Quinn referred to the availability of local authority houses. As has been stated, the very low numbers on local authority waiting lists and the high number of vacant houses indicate clearly that the availability of local authority houses will not be a problem in 1988. There is no shortage of local authority houses at present. We are housing large numbers of single people, unmarried mothers, the homeless and others. I also want to point out that in many parts of the country people are now decided on the type of house they are going to take in an area. I can speak about country areas where people can now say whether they want an end house or a middle house in an estate. People from many parts of the country have said to me that they will not take a middle house because they want and end house. That shows that there is a new position in regard to housing and especially in regard to local authority housing. In the Dublin area there are a number of vacant houses and I would like to see a speedier allocation of houses from the point of view of vandalism and other reasons as well. What I would like to see happening is that local authorities would be able to process applications more speedily and that the handing over of houses would be quicker also.
Deputy Mitchell was concerned about the condition of local authority housing estates. In the first instance I must emphasise that the management and maintenance of their housing stock is a matter for the local authority. I would point out that the remedial works scheme operated by my Department provides assistance to local authorities to carry out major works to their housing schemes. I have already approved a number of proposals in the Dublin Corporation area. The corporation have very recently submitted further proposals which I am considering also. The Deputy will appreciate that such a process must be gradual having regard to the financial resources available. A capital loan is also being made available to the corporation to carry out improvement works to their dwellings under the local authority improvement works scheme. The works involved would include the erection of extensions to relieve overcrowding and the provision of showers and bathroom facilities where none exist.
Deputy Durkan suggested that there is a change in the way local authorities will assess applicants for loans. This is not the case. Once an applicant has failed to obtain a loan from a commercial lending agency, the local authority will assess the applicant in accordance with the criteria which they have always used. The requirement that a local authority have regard to the applicant's housing needs is a condition which ensures that only those in need obtain a loan. In considering applications for loans, local authorities are also required to be satisfied that the prospective borrower will be able to repay the loan.
Deputy Mitchell spoke at length about the conduct of building societies. This is a matter for the Registrar of Friendly Societies in the first place and, therefore, I do not propose to discuss the matter. I am sure the Deputy can appreciate the position in that respect.
Deputy Gay Mitchell suggested that there should be greater flexibility for changing from income-related loans to annuity loans. This flexibility does exist. A person can change from an income-related loan to an annuity loan at any time during the life of the loan. The loan, will, however, continue to attract a variable interest rate which at present is very favourable.
Deputy Mitchell suggested that the income limits for local authority loans be increased. The present limits were set just over a year ago and I am satisfied that these limits are adequate. As I mentioned earlier, the level of public funding of loans is already high and there would be no justification, therefore for creating a situation where this level would be increased even further. I want to say in simple language that the former Minister for the Environment, Deputy Boland, took the income of both spouses into consideration for an SDA loan. I will give a simple example of this. If a husband earned £6,500 and his wife earned £4,000 they would not have qualified for an SDA loan. The present Minister for the Environment changed that. I think we should get some thanks for that because it is the income of the main breadwinner that is now taken into account for an SDA loan. I never agreed that the income of both spouses should have been taken into consideration.
Deputy Kitt suggested that there should be different income limits for the different types of local authority loans. The reason we brought the limits together was to harmonise the income eligibility criteria for the three types of loans. In that way we can identify clearly the people who qualify for a local authority loan and can offer them a range of loans to meet their individual needs. I think it would be undesirable and confusing to have different categories of people eligible for different types of loans which are all operated by the local authorities.
Deputy De Rossa expressed anxiety about the fact that income-related loans can give rise to problems in that the amount owed can increase over the early years of the loan. This can, of course, happen. However, there is another side to this story, in that a loan can actually be reduced very quickly where a person's income increases. Indeed, the Government's action in bringing down the rate of inflation has resulted in very low rates of interest applying to income-related loans and this has resulted in very many people reducing their loans much more quickly than had been expected.
Deputy De Rossa referred to repossessions by local authorities. Where a local authority repossess a house and it cannot be sold on the open market they can take it into stock and let it to a person in need of rehousing. The outstanding debt on the house can be met from the local authority's internal capital receipts. Deputy De Rossa's suggestion that a borrower be allowed remain in this own house as a tenant is not practical as it would encourage default by borrowers who would make little effort to meet their loan repayments if they knew they would be left in the house on a differential rent.
Deputy Quinn asked how the HFA would dispose of the additional £500 million. There is no intention to change the basic purpose for which the agency was set up. The additional funds which the agency will be empowered to borrow will be used to fund house purchase and improvement loans over the next four to five years. Deputy Quinn accused us of dismantling the system which brought about the high level of home ownership. There is no basis for this allegation. In fact, this Bill is intended to ensure that the HFA will have sufficient funds available to finance the demand for publicly funded loans over the next few years. In addition, the recently announced arrangements which will enable the commercial lending agencies to increase their lending to people of modest means will increase the overall amount of money available.
I should like to put the House on notice that I propose to amend the Bill on Committee Stage to extend the purposes for which the agency may advance money to local authorities under section 5 of the Housing Finance Agency Act, 1981 to include the making of improvement loans and the payment of grants. This amendment is necessary due to the expanded role of the agency in funding the provision in the public capital programme for house purchase and improvement loans and so on. Included in this provision are funds to enable local authorities to pay house improvement loans and disabled persons and essential repair grants.
I should like to thank those Deputies who contributed to the debate. If the Housing Finance Agency is to continue its important role in providing funds to local authorities for the provision of house purchase loans it is necessary that they be allowed to increase the amount they can borrow and that contributions can be made towards their costs to enable them to match the cost of funds raised by conventional means with income related payments by borrowers. We experienced teething problems with the new arrangements with the banks and building societies but we are rectifying them. In the case of all new schemes teething problems are experienced. Any problems brought to my attention by Deputies will be investigated.
