Vol. 517 No. 5
11 Mr. D'Arcy asked the Minister for the Environment and Local Government if he will allow county councils and corporations reduce the interest rates of 12% to 7% on fixed interest rates on SDA loans to the current rates of 4.5%; and if he will make a statement on the matter. [7864/00]
47 Mr. U. Burke asked the Minister for the Environment and Local Government the plans, if any, he has to allow county councils reduce the interest rates charged on SDA loans to the current interest rate of approximately 4.5%; and if he will make a statement on the matter. [7869/00]
I propose to take Questions Nos. 11 and 47 together.
The Deputies seem to be suggesting that the fixed interest rates applicable to SDA housing loans be reduced to a rate of 4.5% which is close to the current variable rate of 4.25% in line with market rates. Current fixed interest rates are considerably higher including those on local authority housing loans which are set at 6.75% for a period of five years.
The higher fixed interest rates of 12.5% to 7% referred to by the Deputies relate to loans advanced in the 1970s up to the mid 1980s which reflected the cost of long-term funds available at that time. Since 1980, borrowers have been free to redeem fixed interest rate loans without penalty and refinance them in the private sector. This is a very significant concession, the cost of which must be borne by the Exchequer, the Housing Finance Agency or the local authorities. Borrowers with commercial lending institutions are, on the other hand, obliged to pay significant redemption penalties of up to six months interest or more in the event of early redemption.
The Government's review of An Action Programme for the Millennium contains a commitment to target support to home owners with high fixed interest rate local authority loans. This commitment reflects the Government's concern for those borrowers who are unable to redeem such loans due to their inability to refinance in the private sector. My Department is in contact with the Department of Finance with a view to putting in place measures to implement the Government's commitment.
Will the Minister allow county councils to reduce the rates charged from the current penal rate of 12%? No other lending agency charges anything like 12%. A sum of £193 million is involved in these loans, of which just under £80 million is charged at 12%. How can the Minister say that these loans can be redeemed without penalty?
The initial principal borrowed in the majority of loans was between £8,000 to £12,000. With a little goodwill the Minister could alleviate the problem by providing £12 million to reduce the rates. If anyone attempts to redeem or re-finance these loans they will incur a penal cost of about £2,000 due to legal and other costs.
A question please, Deputy.
This is a special category of people who have been refused loans by all other agencies. They are the new poor, despite the fact that they have a valuable residence. They are being severely penalised and I hope the Minister will seriously consider providing £12 million to reduce the rate from the current penal level of 12%.
The Government gave a commitment in the review of the action programme to try to target support to home owners with fixed high interest local authority loans. We are in contact with the Department of Finance to see if we can advance this issue.
I do not agree with the assertion that a financial institution, private or otherwise, would lend money at a fixed rate and reduce it thereafter.
Agreement was reached at a particular time in the loans in question. Previous Governments and this Government have been generous in allowing people to redeem the loans without penalty and refinance them in the private sector. For those on fixed incomes we will try to do this. I am not sure where Deputy Ulick Burke got his figures in relation to the 12.5%. My information states that the balance outstanding in respect of 12.5% fixed interest loans at the end of 1999 was £67 million, 40% of the total amount of £164.7 million outstanding for the local loan funds and SDA loans.
Would the Minister consider changing the tenant purchase scheme to allow tenants to purchase houses not at the market rate, but at the cost of building plus an inflationary factor? We have a responsibility to help the tenants on housing estates who want to purchase their own homes. They are a great source of stability in some of the toughest housing estates. By implementing this proposal, we could help local authorities to reduce their maintenance costs.
That is a totally separate issue which is not covered in the question. In theory it sounds like a good idea but in practice it might mean that some people would get very cheap houses and sell them on at exorbitant profit. That is the danger with such a scheme.
Safeguards could be built into such a scheme.
Written Answers follow Adjournment Debate.
