Written Answers. - Local Authority Loans.
Bernard Allen
Question:
176
Mr. Allen
asked the
Minister for the Environment and Local Government
the action which is planned to reduce the high fixed interest rates being paid for many local authority loans; and when those paying these high rates will be given relief.
[17540/02]
Bernard Allen
Question:
178
Mr. Allen
asked the
Minister for the Environment and Local Government
when the first survey of local authorities took place in relation to high fixed interest rates; the number of loans involved; when the local authorities were asked for additional information; the number of local authorities which have responded to date; the number of additional cases which came to the notice of his Department; the date set by him for the completion of the analysis; the amount of additional interest being paid over the market rate for 2000 and 2001; the forecast for 2002; the measures he is considering to address the question; the date on which he will make proposals to relieve this situation; and if he will make a statement on the matter.
[17543/02]
I propose to answer Questions Nos. 176 and 178 together.
Certain fixed interest rate loans issued by local authorities prior to 1988 carry rates in excess of current levels. These fixed interest rates reflect the cost of long-term funds prevailing at the time the loans were advanced and are fixed for the life of the loan. The cost of reducing the fixed rates on these loans would be considerable and would have to be borne by the Exchequer, the Housing Finance Agency or the local authorities.
Since 1980, borrowers with local authority fixed rate mortgages are free to redeem such loans without any interest rate penalty and refinance them in the private sector. This may be regarded as a significant concession given that borrowers with fixed rate mortgages from commercial lending agencies are typically obliged to pay significant redemption penalties of up to six months interest, or more, in the event of early redemption.
In February 2000 my Department undertook a survey of local authorities to determine the extent of remaining high fixed interest rate loans. The results of that survey showed that there was almost 44,000 individual fixed rate housing loans outstanding at that time, of which 38% were at 12.5% interest rates and the balance at rates under 12.5%. The average amount outstanding on an individual loan at that time was less than €6,600.
In May 2001, it was established that the information supplied in response to the survey did not, in some cases, include tenant purchase loans. In view of this my Department requested all local authorities on 21 May 2001 to review and update if necessary the information supplied.
Of the 42 local authorities issuing housing loans, 35 have responded to this second request. The number of additional cases included in the responses received to date is just over 19,000 which brings the overall total of fixed rate housing loans to some 63,000 and the average amount outstanding on individual loans to around €6,350.
It is estimated that the cost of a reduction in the high fixed interest rates to the average local authority fixed rate of 6.6% in 2000, 5.9% in 2001 and 5.3% in 2002 would be in the region of €10 million, €11 million and €13 million respectively in the first year, declining thereafter as loans are paid off.
The position regarding these high fixed interest rates was reviewed in November 2001 in consultation with the Department of Finance. This review determined that a State subsidy to reduce interest rates would not be appropriate.
