Vol. 499 No. 2
5 Mrs. T. Ahearn asked the Minister for the Environment and Local Government if he will re-finance mortgages issued to home buyers through local authorities in order that those buyers can benefit from current interest rate levels rather than being obliged to pay interest at 12.5 per cent; and if he will make a statement on the matter. [2354/99]
The interest rate of 12.5 per cent which applies to some local authority fixed rate house purchase loans issued before 31 October 1985 is related to the cost of long-term funds prevailing at the time the loans were advanced and is fixed for the life of the loan. While these fixed interest rate loans of up to 12.5 per cent look expensive today, they were, in fact, very favourable at the time they were advanced in the late 1970s and early 1980s, when commercial lending rates were up to 16.25 per cent. In addition, the loans involved in any case typically ranged from £9,000 to, at most, £16,000 and the average price of houses purchased with the aid of these loans was generally between £16,000 and £25,000.
The cost of refinancing these mortgages today would be substantial and would have to be borne by the Exchequer, the Housing Finance Agency or the local authorities. However, any person with fixed rate local authority repayments for a house purchase loan or under a tenant purchase scheme is free to redeem without penalty and refinance, if necessary, in the private sector at current interest rates. The removal of penalties for early redemption in the case of local authority fixed rate loans is a unique and valuable concession to local authority borrowers and I understand that approximately £50 million in local authority housing loans were redeemed last year. Persons with fixed rate loans from banks or building societies are, on the other hand, liable to pay a penalty of up to six months' interest if they want to redeem their loans. I do not consider that the introduction of any further subsidy to reduce the interest rates on pre-1986 loans would be warranted.
I am not just disappointed, I am devastated by the Minister of State's reply. Will he accept that when we speak about those mortgages we are talking about the lowest possible income earners who could have taken out a mortgage? We all admit that they would not have gotten a mortgage from any financial institution and that they got them from local authorities at a favourable rate at the time. However, the climate has changed and those on the most modest incomes are now paying the highest rate on their mortgages. Does the Minister of State think that is fair?
Some of the houses bought with these loans were bought for £15,000 or £20,000 and many of them are now worth over £100,000. The repayments on the loans for those houses are between £25 and £35 a week. When one puts it in that context, one sees it is not a huge burden. The people involved have a very valuable asset. Those who are benefiting from low interest loans today are paying £90,000, £100,000 or more for their houses. When one looks at the matter in proper perspective, it would not be right for taxpayers to have to carry the cost of reducing those loans.
We have offered a facility to anyone who wants to refinance without incurring penalties. A substantial number of people have done so, and I am sure will continue to do so. It would be to the benefit of some people to do so while others are quite happy with their current situation. I do not think we could justify subsidising people who had the benefit of these loans and got houses, the capital value of which has increased in many cases by 500 per cent.
Will the Minister of State accept that we are dealing with a category of people who, but for their own initiative and determination to own their own houses, would have been the responsibility of the local authority, and housing them would have been a major cost to the State? Due to the fact they bought their own houses, they lost out on a very generous tenant purchase scheme and a grant which was available at that time, so they lost in every area.
If the Minister of State is comparing those mortgage holders to people today who can afford a £90,000 mortgage, I will have to bring him back to reality to a couple I know, who in 1979 borrowed—
The Deputy must confine her comments to questions.
Does the Minister of State consider fair, or would his Department be proud of, the situation of a couple who borrowed £7,600 in 1979, 20 years later they have paid back £16,361 and today they still owe £10,731? At the end of the day, they will have paid back four times the amount they borrowed to the Minister of State's Department. If they redeem the loan, which the Minister of State is suggesting and is putting forward as a good buy-out scheme, it would cost them £6,000. Will the Minister of State do something about this category of borrower, who have lost out on the double? Something should be done for them similar to what was done by the Department of Agriculture and Food for farmers who bought land from the Land Commission. Why can the Minister of State not go down that line?
Of course the Deputy is not telling us the weekly repayment or the value of the house today.
That is not the question. The Minister of State just does not give a damn – he could not care less about them.
The fact that this couple—
The Deputy seems to be imparting more information than she is seeking.
Unfortunately, it is necessary.
Question Time is not the occasion to give information to the Minister.
The Deputy should advise people to refinance if they need to.
The Minister of State obviously does not know of people who are in this dire situation, unlike the rest of us. Will he confirm that the debt management agency renegotiated those loans? If that is true, why was the benefit not passed on to those mortgage holders?
The Deputy knows those loans were issued at a time when fixed interest loans were very advantageous to those who qualified for them – not everyone qualified and some had to pay the higher rate to building societies. If the amount of the repayments are proving a burden to individuals, they have the opportunity to refinance and reduce the weekly payments. That is the advice the Deputy should be giving these people rather than holding out the expectation that there will be a reduction in interest rates for them although they contracted for a fixed interest rate loan, which cannot be changed now.
The Minister of State did not answer my question. Will he confirm that the debt management agency renegotiated those loans? Why was the benefit not passed on to those modest income earners? That was my question.
That is not the question on the Order Paper.
It is my supplementary question.
I will have the matter looked at. It is relevant to the point of the question put to me, which is whether there will be a change in the interest rate charged. There will not and that is the position. The Deputy should give the people the proper and best advice, which is to refinance.
We must move on to the next question.
I am amazed the Minister of State does not have the information.
The Minister of State gives one kind of advice because it is in the brief – he will not give the other kind because it is not in his brief.
We must move on to Question No. 6.
Is the Minister of State satisfied that—
I have called Question No. 6.
