Seanad Éireann debate -
Wednesday, 4 Dec 1985

Vol. 110 No. 5

Housing Finance Agency (Amendment) Bill, 1985: Second Stage.

Question proposed: "That the Bill be now read a Second Time."

Minister for the Environment (Mr. Kavanagh)

The main purpose of this Bill is to increase the borrowing limit to which the Housing Finance Agency is subject under section 10 of the Housing Finance Agency Act, 1981, which established the Agency. It is proposed to increase the amount which the Agency may borrow from £200 million to £500 million. At the same time the opportunity is being taken to propose a few other minor technical amendments to the present legislation.

The funds raised and distributed by the Housing Finance Agency since its establishment have made a very significant contribution to the housing programme and have greatly benefited the housebuilding sector of the construction industry. The loan scheme operated by the Agency provides a source of loan finance for those on modest incomes and, thanks to the income related and low deposit features of the scheme, thousands of people, who otherwise could not aspire to home ownership, now own their own houses. The increase in the borrowing limit of the agency, as proposed under this Bill, is necessary to enable it to continue this good work.

The setting up of the agency in 1981 represented a breaking of new ground in the raising and provision of funds for house purchase. As Senators will be aware, the agency raises funds on an index-linked basis from institutions such as life offices and pension funds. It makes the money available for the purchase of houses by way of loans which are repayable on an income-related basis. The popularity of this kind of mortgage scheme with potential house purchasers is evident from the fact that lending by the agency has increased from £55 million in 1983, its first full year of operation, to £72 million last year and an estimated £90 million in the current year. This last figure includes a further £4.5 million increase which, I am pleased to announce to the House, I am authorising in the agency's allocation for 1985. It brings to £25 million the addition which has been made in the course of the year to the amount initially provided in the 1985 public capital programme. The increased capital allocation to the agency means that it is in a position to meet, as they arise, the demands for loan payments.

The level of the capital allocation for the agency together with that made to the local authorities for their own house purchase scheme is clear evidence of my own commitment and that of the Government to maintaining a sufficient level of mortgage finance from public sources to enable those on relatively lower incomes to reach the desirable goal of owing their own homes. The schemes are, of course, very significantly complemented by the other incentives available from my Department, such as the £5,000 grant for those surrendering local authority houses, the £2,000 new house grant and the £3,000 mortgage subsidy. I am especially pleased that a large number of persons availing of these loan schemes and the other grants and subsidies are either vacating local authority accommodation — and in the process freeing these dwellings for letting to persons on the local authority waiting lists — or would, in the absence of the schemes, fall to be housed by local authorities.

The ability of the agency to meet demands made on it for mortgage finance depends essentially on its ability to raise funds at competitive rates by the sale of index-linked stock. While the financial market has not recently been generally favourable to the sale of such stock, the agency has still succeeded in raising substantial funds each year. An unsatisfactory feature of the various stock issues has been the increasing yield the agency has had to pay to investors. I am pleased that the yield of 4 per cent for the latest placement marked the first occasion the cost of funds to the agency has declined. I am hopeful that this will be a continuing feature of future issues.

Sufficient funds have not, however, been available from stock issues to pay current demands due to conditions in the financial market. The agency has, therefore, had to resort to short term borrowing from the banking system. Regrettably these short term borrowings have proved more expensive than stock issues and they have had an adverse effect on the agency's ability to avoid losses on its activities. Notwithstanding the increasing yield that has had to be paid on stock issues, the overall interest rate charged to those borrowing from the agency continues at a very reasonable level — the rate most recently applied was 10.2 per cent. This has been one of the tangible benefits of the Government's success in reducing inflation to low single figures.

The scale of the agency's activities means that the borrowing limit of £200 million, as fixed under section 10 of the Housing Finance Agency Act, 1981, now needs to be increased. Section 2 of this Bill proposes that this limit should be increased to £500 million. The actual amount of borrowing permitted each year for the agency will, as previously, be fixed in accordance with normal procedures under the annual public capital programme and any subsequent adjustments to it. In my view the new limit of £500 million proposed strikes the right balance between the necessity to give reasonable scope to the agency and the need to ensure that the Oireachtas will again have an opportunity of reviewing the activities and operation of the agency in about three years time.

The original intention was to deal with the limited measure now proposed in the Housing (Miscellaneous Provisions) Bill, debate which commenced in the Dáil yesterday. This was on the strength of an interpretation that the limit of £200 million under existing legislation applied to the amount of funds actually accruing to the agency on foot of stock issues. Section 2 of the Housing Finance Agency (Amendment) Act, 1982, referred to, and I quote, the "money actually borrowed by the Agency". But recent legal advice is to the effect that the limit properly relates to the nominal amount of stock issued, disregarding any discounts at which the stock might have been issued. In the circumstances, it became necessary to bring forward the present Bill since the more detailed Housing Bill will take some time to be enacted.

In addition to raising the borrowing limit, section 2 of the Bill permits the agency to raise funds by means of promissory notes or bills of exchange and changes the basis for calculating the amount of foreign borrowings for the purpose of ensuring compliance with the overall borrowing limit — these are by way of amendments of section 10 of the 1981 Act. The agency will, by virtue of section 2 (a) of the Bill, have the option, in the future, of utilising promissory notes or bills of exchange in the course of its funding activities should they deem these means appropriate. In calculating the amount of foreign borrowings, the appropriate exchange rate will in future be that which prevailed at the time of borrowing rather than, as at present, the exchange rate prevailing at the particular time the calculation is made. The new rule will ensure that the borrowing limit is not exceeded simply because of an appreciation in the value of a foreign currency in which money was borrowed. I should mention, for the information of Senators, that the agency has not to date raised any funds through the medium of foreign borrowing.

Section 3 of the Bill is entirely consequential on section 2. It extends the powers of the Minister for Finance to guarantee borrowings by the agency of funds raised by way of promissory notes and bills of exchange.

To conclude, the amendments proposed in the Bill are of a limited nature, providing for an increase in the statutory borrowing limit of the agency and, as I have outlined, for a few amendments of a technical nature. Enactment of the Bill will enable the Housing Finance Agency to continue its valuable contribution to the financing of our housing programme and to making home ownership available to persons of modest means.

I commend the Bill to the House.

Mr. M. O'Toole

At the time this Bill was introduced I did not feel that it was very attractive. When this enabling Bill to increase the ceiling from £200 million to £500 million came before us I immediately set about trying to find out where exactly this money was being spent. When I spoke here on the early stages I found that the scheme was not attractive. It is still not attractive in my part of the country. To quote some figures to show how it has fared in my own county to date, I find that up to 31 October 1985 we had only 47 loans issued, a total of £723,000. When I read this Bill and found that another £300 million was required I could not imagine where this money was being spent. I would like the Minister to tell me if this is a city-orientated Bill for the eastern part of the country or for Cork city or is it in the greater built-up areas that it is attractive?

I have quoted the number of applicants that have been issued with grants in the county that I come from. We had a housing meeting quite recently and we discussed the Housing Finance Agency Bill and that is what we found. There are certain anomalies that are not attractive. The one that comes to mind first of all is that if you were the holder of a loan and for some reason or other you had to change your job from one county to another you might well end up with a house valued at maybe £30,000 or £40,000 carrying a debt of almost £70,000 to £80,000 at the time of your changing or selling that house. Of course it would put you in the position where you would be unable to sell that house.

The greatest problem or the fear in most people's minds is that the scheme is linked to inflation. The income of 18 per cent has now risen to 20 per cent. That also gives a change in your percentage income. The SDA loans have been going like a bomb in most of the western counties and will continue to do so, I am sure. Had the ceiling of £8,000 of an income limit been increased the SDA loan would far exceed the Housing Finance Agency loan in its attractiveness. From our experience, we spent £5,423,000 in 1984 on SDA loans whereas we spent only £723,000 on the Housing Finance Agency loans. Many resolutions have been forwarded to the Minister's Department to increase that ceiling by at least £2,000 to £4,000 to give people with SDA loans an opportunity of building their own houses and building the houses of their choice in their own area.

What I see wrong with this is that it is based on inflation. If you borrow a huge amount of money — £22,500, or if you are on a housing list £27,000 — a 2 per cent or indeed a 1 per cent rise in inflation can have a considerable effect on your position as applicant for a Housing Finance Agency loan, That is the fear I find in most people's minds and that I believe is why the scheme was not attractive in the west. I would like the Minister to tell me specifically where the bulk of applications came from because that I think our experience is general as regards the western region. Maybe we are more cautious in the west about borrowing than in the east.

It would appear to me that the scheme has not got the attractiveness that one would like it to have. I am not opposing the Bill today. If there are people who still wish to avail of this type of loan and feel they are in a position to pay it back, then that is fine. If we were taking some of our people who are in desperate need of housing and giving them proper houses, I would welcome it. But, if you look at the statistics again vis-a-vis second-hand houses and new houses, you will see that while the scheme was normally for first-time purchasers or first-time builders, now the majority of loans are for people who are in a house at the moment and are changing from one house to another. They are buying second-hand houses — perhaps better houses than those they now live in — and they are availing of the loans to better their own housing.

The statistics show that more secondhand houses are being availed of with this type of loan than new constructions. The scheme does not relieve the plight of the construction industry at the moment. If the figures are right, buyers of secondhand houses seem to be availing of the grants. The pool of houses which were not bought, which were in the bank awaiting purchase and are now being purchased under this agency, may relieve the construction industry in some way because most building contractors have a number of houses still vacant in Dublin and awaiting a tenant or purchaser. If the scheme was doing that I would say it would be an attractive one to avail of; but, if it is not doing that, I feel it is not solving the housing problem and is not doing anything for the construction industry. Probably fewer than half the number of houses in the pool or the housing bank in the cities and elsewhere throughout the country — but more so in the cities — would be affected.

The SDA loan is a most attractive loan in my area. I would suggest to the Minister that if the ceiling were raised many people would feel that with the £16,000 SDA loan plus the £5,000 grant, they would be able with their own savings to build their own type of house and be in a position to repay the cost at a fixed rate. I welcome the reduction in that fixed rate, from 12½ per cent down to 11 per cent. That is something to be welcomed. Rather than an increase with the inflation rate, as with the Housing Finance Agency, with the SDA loan you have a reduction in interest rate.

An Cathaoirleach

I must point out to the Senator that we are not discussing SDA loans.

Mr. M. O'Toole

I know, but it is relevant to the whole borrowing market.

An Cathaoirleach

I have allowed the Senator to make some passing remarks.

Mr. M. O'Toole

I think it is relevant, but I accept your ruling. We are discussing this new loan launched by the Housing Finance Agency and we are equating it with the existing type of loan. I am bringing out some facts that may prove to the Minister that in my area — I have given him figures — the SDA loan is more attractive than the Housing Finance Agency loan. I do not see it giving any great relief to the construction industry because when houses are purchased with these loans and other houses are vacated and not reoccupied, they will go into a derelict condition and our housing stock will deteriorate. This does not take people off the local authority housing list. There is no income limit in the case of people applying for this loan and they are not limited to 1,346 sq. ft. either. For that reason the upper income group will be availing of this loan rather than the people who would be on our housing lists in local authorities. That is another reason why I feel it is not attractive in my area. I would welcome the figures from the Minister and any other information he can give me.

Mr. Ferris

First of all, we know what the Bill is doing. It is increasing the borrowing limit of the agency from £200 million to £500 million. This is something we have been concerned about because the agency has had problems in trying to meet all the demands that have been made on it. This is contrary to what Senator O'Toole was saying, that nobody is looking for the loan or nobody is benefiting from it. I am surprised that County Mayo seems to be the exception. There may be a reason for that. Almost 2,000 people in local authority houses have already qualified for Housing Finance Agency loans. I want to compliment the Minister on increasing this borrowing limit which is very important to the agency to ensure that it continues but also to say that with the whole package that is now available for people to build or buy their houses a lot of activity has been generated both in the area of building new houses and improving existing houses. Anything that is helpful to the building industry must be welcomed. This particular agency was to facilitate particular classes of people that were not facilitated under previous loan schemes.

The SDA — and you do not want us to talk about it — is confined to income limits and also confined to maximum area.

An Cathaoirleach

I did not say that I did not want you to talk about it but I do not want to have to hear your whole speech on it.

Mr. Ferris

The special category loan which is specifically for tenants of local authority houses has no income limit and increases the borrowing amount to £20,000. They are two very important categories of loans and ones which we should promote because at least somebody with a secure job, living in a county council house, can borrow with a certain amount of confidence at a fixed rate of interest. This would be their first preference if they have a job that is reasonably secure. The Minister recently ensured that all manual workers in county councils will have security of employment. For the first time in the history of the State we are treating ordinary county council workers in the same way as the county manager and I must compliment the Minister on that. People in that category would naturally prefer to be able to borrow on a fixed rate of interest, particularly now as the Minister has reduced the rate to correspond with the reduction of interest rates in normal banking terms and has matched the drop in the inflation level on which this Government should also be complimented.

If we look specifically at the Housing Finance Agency and the terms applying originally — and the rate of repayment at that time was 18 per cent of your income and it is now 20 per cent — many people had reservations because they did not understand the full implications of how their loan was going to be repaid. The advantage of it is that the level of income is increased to £10,000, and the amount of money that it is possible to borrow is also increased from the £16,000 of the SDA or the £20,000 in the special category up to a maximum of £27,500. There are some areas in which that kind of money is required to buy or build a house depending on where you live in the country. Obviously in County Mayo house prices are cheaper than in Foxrock. If we have people who want to better their housing, in whatever part of the country they live, we must ensure that all sorts of facilities are available to them through Government agencies, and for that reason I welcome this measure.

In addition to the amount being increased there is a clause that allows particular age groups of borrowers to multiply their total annual income to determine the amount of a loan they can have. Inbuilt into the repayments is insurance cover that in the event of one or other of the spouses dying during the period of the borrowing the balance of the actual amount borrowed is written off by insurance cover. This is a major contribution to the easing of people's minds when they are borrowing. Naturally we are all worried about too many people borrowing more than they can afford in the interest of trying to better themselves. We have in recent times difficulties with people who borrowed relatively small amounts on SDA loans being unable to meet their repayments in spite of the lower rate of interest. That is something none of us would welcome. The county councils and the lending agencies try to deal with these cases as fairly as possible. Eventually after a number of years if no effort is being made they are forced into a situation where they have to go through a process of taking back the house from the person to whom they loaned the money. It has not happened very often.

People tend in this day and age to borrow a little more than they can afford. The HFA is important in that the rate of payment is determined by one's ability to pay. It is something like the differential rent system — if you have a good income, you pay a fair amount of money on the loan. If one is unfortunate enough to lose one's job account can be taken of one's changed circumstances. That is something to commend it. It has served a very useful purpose in the country as one of the options available to people.

I have a primary concern for people in local authority houses because for many of those the first chance they ever had of a decent house was when the county council bought the site, built the house and gave it to them on a differential rent and that was our only commitment. I remember a previous Taoiseach saying that we should not build too many local authority houses because it is bad to do that. The Minister, Deputy Kavanagh, has the excellent record of building more houses than any other Minister in the past. He built 7,004 local authority houses last year. He has since implemented these grants which he has referred to in his speech, the £5,000 grant for surrendering your council house, the £2,000 new house grant if you build a new house and the £3,000 mortgage subsidy to help with your loan repayments. You literally have a present from the Government of £8,000, £9,000 or £10,000 for people who want to make the effort to improve their situation.

From any point of view, ideological or otherwise, it is a good thing if one can move people down that road with assistance which will have a spin-off benefit for the building industry. All the new grants are of benefit to the building industry and will help to close off the black economy about which we have all been worried. Some unemployed people can do jobs and little additions themselves and cannot afford to employ a contractor to do the work. Anything we can do to ensure that builders are in the registered net so that the Government can get whatever contributions they should be making, should be done. The Government then can do more in return through incentives. I welcome the Minister's recent incentives by way of grants and in this Bill he is ensuring that the agency will have sufficient money at their disposal.

As a member of a local authority I know that the manager announced recently that the agency had problems in meeting the demands. The Minister has shown that the amount of money loaned by the agency has increased dramatically over the last number of years and have created such a demand that we, as legislators, should ensure that they have the power to borrow more and to be indemnified by the Minister for Finance in their borrowings and, in particular, in their foreign borrowings. Up to now the agency has not had to borrow outside of the country to meet demands. It is good when we improve the ability of an agency to help people and it is good when a Minister recognises the various needs by way of grant incentives, mortgage rebates and mortgage assistance.

For the first time over the last ten or 15 years people can help themselves with a bit of Government assistance and the end result is the amount of decent houses being built by people, the level and quality of the houses the Minister is building with chimneys, cookers in most of them, central heating in some of them and a standard of public authority housing that has never been achieved in this country before. There is a great demand for local authority houses. In the city there is a tremendous demand for additional housing. People are attracted to centres of activity such as Dublin or Cork.

Senator O'Toole seemed to suggest that when people leave the house they are in to go to another house the original house falls down. I am not aware of that happening because if a person leaves a private house he will sell it and if he leaves a local authority house it must be in good condition before he will qualify for the £5,000 grant. Otherwise the inner city of Dublin would die. Many changes were made, and they were started by Jimmy Tully, to ensure that the centre of the city did not die and there are major in-fill projects all over the city which have taken place through Government assistance to ensure that the city does not die and is somewhere where people can be proud to live and be part of the old Dublin.

Much emphasis has been placed on that policy. I do not know of anybody who moves out of a house and lets it fall down. If it is a private house the owner will do something about it or if it is public the public authority will do something about it or if it is that bad they will demolish it and rebuild other houses on it.

When we come to discuss the report of the Oireachtas Joint Committee on Building Land we will be able to deal with that question. It will have to be addressed by local authorities who have access to derelict land to ensure it is not allowed to remain, which for some time had been the policy of speculators who acquired land waited for the appropriate time to develop it. We are making progress in that area and we are making progress in the area of CPOs which will be speeded up and give more power to local authorities to buy up the land that can be used for the benefit of the community.

This Bill is to be welcomed. It is a very short Bill. I hope the Opposition will agree to deal with all stages of it today because the sooner we put this on the Statute Book the better. The sooner the agency can have the legislative power to borrow the sooner they will be able to meet the demands. It behoves all of us to speed up that process. We could go into the various details of whether a person will owe more in ten years time than they borrowed. People have these fears with regard to a HFA loan. People fear that if in ten years' time their wages have doubled they will be paying twice as much for the house and that their children will finish up paying off the debt. Perhaps the Minister would try to alleviate those concerns. Many people on lower incomes opt for the HFA loan because the repayments are reasonable and people on high incomes who have been excluded from other loans opt for the HFA loan. It is part of a package of trying to assist people to better themselves.

Mr. Fitzsimons

I welcome this Bill. As the Minister has said, the measure is limited and does not give us the scope we would wish to have in dealing with housing problems but it gives us an opportunity to refer to some of these. I should like to be associated with Senator Ferris in the compliments he has paid to the Department of the Environment. Over a long period I have had dealings with them and I have experienced nothing but courtesy and help.

There are and have been great pressures on funds for building. One of the reasons for this pressure is the success of the £5,000 grant scheme to local authority tenants who provide houses of their own. We should compliment the Department on this. I refer to one unwelcome aspect of this scheme which is well known. In the country where this scheme is a success the better-off tenants are those who are moving. When I say the better-off I mean those who have their families reared and have more finance than parents with young children. They are leaving and the example and headline they set is missing. In all schemes it is necessary to have this example to which others can aspire. What might be regarded as the better class tenants are leaving. This should be looked at. I do not say that in a critical manner in complimenting the Minister on the success of the scheme.

The Minister in his speech referred to the popularity of this kind of mortgage scheme with potential house purchasers and he said this was evident from the fact that the lending agency has increased from £55 million in 1983 to £72 million last year and £90 million this year. In that sense it is popular. It had advantages and disadvantages. There is a saying in our part of the country: "When all fruit fails welcome haws". I believe there are many people who have to avail of this scheme to build their houses. They do not qualify under the Small Dwellings (Acquisition) Acts loans scheme. I also believe, like Senator O'Toole, that the conditions could be changed with regard to these loans. These loans cost the country nothing. I do not see why they should be confined to people with an arbitrary income of £8,000 and why the £16,000 could not be increased. If that were done many people who are now availing of these loans would not use them.

The main purpose of the agency is to raise extra funds for house purchase loans on a self-financing basis. The benefits of this loan are set out by the agency. Some of the advantages are that it can cut down the size of the deposit. The average new modest type house costs about £26,000.

A person with an annual income of £8,000 can get an ordinary loan of £16,000 from the local authority under the existing SDA scheme and a grant of £2,000. This means that he must find a deposit of £8,000. Under the agency scheme he can get a loan of £22,500 and a grant of £2,000. This cuts his deposit to £1,500. Secondly, the agency scheme can reduce the amount of loan repayments in the early years which is a very important consideration. For example, a person with an annual income of £8,000 can normally borrow up to £20,000 from a building society to build a house. His repayments in the first year will amount to approximately 43 per cent of his income and this proportion will normally decline in later years.

Under the agency system a person borrowing two and a half times his income in the previous year will repay each year on the basis of 20 per cent of the gross income of the borrower or his spouse, whichever income is the greater, in the previous tax year. Other advantages are that the scheme is available to single people, people who may not have arrangements made to marry. Senator Ferris mentioned the mortgage protection policy for each loan which covers the borrower in the event of death or permanent disability. This is a marked benefit, a sum of 0.2 per cent is added to the interest rate to cover the cost. Borrowers are entitled to income tax relief in respect of interest paid in an income tax year subject to the conditions that apply to all house purchase loans. These are very important benefits.

There is also very serious disadvantages. The most serious disadvantage is that the capital increases over a long period of years. With the SDA loan there is a reduction on the capital. Even though in the early years it is very small, nevertheless there is a reduction in the capital and it is for a fixed period. This is open-ended. The agency gives an example in its leaflet of the situation where a person would borrow. The example it takes is of a loan of £22,500 where the borrower's income for the previous tax year was £7,500 and the interest rate is 5 per cent above inflation. The person starts off with a loan of £22,500. After five years the capital outstanding is £30,261.60. After ten years the capital outstanding is £39,308.50. After 15 years the capital outstanding is £48,258. After 20 years the capital outstanding is £53,405.50. After 25 years the capital outstanding is £46,225 and after 30 years the capital outstanding is £8,510.04. That peaks at 21 years to £53,000. After borrowing £22,500 at 21 years the amount outstanding is £53,356.86. The increase in the price of houses was perhaps intended to balance that increase but for the past two or three years we have had no increase in the prices of houses. Prices have remained static.

It seems that there must be something very wrong with the situation where £22,500 is borrowed and after 21 years the capital outstanding can be £53,356.86. A person who wanted to change houses would probably find that by selling his house he would not be able to redeem the amount outstanding. I know the agency recommend that repayments should be in excess of the 20 per cent minimum. The tax relief was not included in that table and neither was the mortgage relief subsidy of £3,000 which at the early stages would make a considerable difference. There must be something very wrong with that situation. I have been associated with quite a few people building houses. They would be people who would be hoping to build a house, move to it and sell it after a time and move to a better house to improve their circumstances.

That would be impossible to do with this type of loan. This loan is geared to younger people. Senator Ferris mentioned that there is provision for giving reduced loans to people up to the age of 55. That is the limit. It is intended for younger people and people who are going to move to a particular house and stay there. That is a serious disadvantage and is an area the Minister should look at. I realise that people who will avail of this loan are people who would not qualify for the SDA loan, the building society loans or any of the other loans. The farmers are catered for by the Agricultural Credit Corporation. I am not sure about the self-employed. Perhaps the Minister would refer to that. As has already been said, the increase does not mean more houses. There has been a drop in the number of SDA loans. In 1980 the number of approved applicants was 10,381 while in 1984 it was 4,959. There is an overall drop of 1,806 in loan approvals. More second-hand houses than new houses have been approved for Housing Finance Agency loans. This is something that should be reversed. The position would be far better if it was the other way.

New private houses completed in 1981 amounted to 23,236 while in 1984 there was a drop of 5,295 to 17,941. Originally, the minimum repayment on the HFA loan was 18 per cent of the previous year's income. I would like the Minister to comment on the reason for the change of 2 per cent. The SDA and HFA loans do not cost the State any money. I made attempts at different times to find out what the actual position is with regard to this, but they are self-financing. I would like the Minister to comment briefly on that. I fail to understand why the conditions cannot be improved. If the loans do not cost the State anything and if, in effect, through them we are getting more houses built, why can these conditions not be improved and the ceilings lifted?

There is a serious problem with regard to defaulters. Many of the people who are unable to repay their loans are people whose circumstances have changed. They may be people who have lost their employment and require help. While provision is made for people whose spouse dies or who becomes incapacitated — a decision is made in those circumstances to set off the amount outstanding — something should be done for those people who through no fault of their own are unable to make repayments. It was suggested in the other House that perhaps the local authorities could take over those houses and rent them out to the owners. In that way they would not lose face. This is something that should be looked at seriously.

Senator Ferris referred to direct labour. There is a radical change in this area so far as the Department of the Environment are concerned. I only want to refer to this in passing, but it is a serious mistake. Most of the people with whom I have been dealing in regard to new houses or the reconstruction of old houses are people who would carry out most of the work themselves. They would do the masonry work and carpentry, as well as the painting. They would be unable to have the work completed if they had to engage a contractor to do it. This is a complete change in the position of the Department of the Environment in regard to loans. The Minister should look again at the area of direct labour. We all welcomed the reconstruction grants. The fact that people must engage a registered contractor will mean that many people will be unable to have work completed. Most people would carry out the work themselves. This solution seems to be eliminated. That is a mistake and should be looked at again.

I wish to refer to the special category grant of £27,000. It refers to a family of at least three people — for example, a married couple with one child — who had been for at least one year on an approved waiting list for rehousing. Perhaps this could be changed to provide for a married couple. I also referred to the case where somebody dies or becomes permanently disabled. It is important that this contingency should be covered. The house must be under the grant qualifying limit of 125 sq. metres or 1,346 sq.ft. It must also be above the minimum qualifying limit of 35 sq. metres, and 30 metres in the case of flats. This is an unnecessary restriction. People who are availing of this loan might want to build bigger houses. I understand the reasoning behind the Department's regulation with regard to the size of house, but with regard to HFA loans this restriction should not apply.

In conclusion, I want to say that I welcome the Bill. The HFA loans have many benefits, but they have a serious disadvantage in that the capital increases for a considerable length of time. Also, it is open-ended. In certain circumstances the loan might not be repaid after 50 years. Having regard to the situation, which everybody says must change, that house prices have not increased over the last few years, some element should be introduced into the HFA loans scheme to ensure that the capital will not increase.

Mr. Cregan

I also welcome the Bill. I have seen a revolution in house purchase and house ownership since 1981. Earlier this year we made modifications to bring about a situation where more people would be allowed to own their own houses and would be paid £10,000 to move from their existing houses. I am a little confused. In 1981, when the Bill was introduced, there was a guarded welcome for it from the Opposition. Up to the present, over 11,200 people have availed of HFA loans. That is not to be passed over lightly. We should not give the impression that it is not a good thing to purchase your own house. I congratulate the Ministers who since 1981 have improved the allocations to the Housing Finance Agency.

There are some aspects of the agency that might have to be questioned. There are some other people who should be able to avail of HFA loans but, unfortunately, cannot do so. A person who availed of a building society loan might be in the position through his own misfortune, of not being able to repay that loan. He might not have the opportunity of availing of the HFA loan. Other people might be in much better circumstances and could avail of the same loan and get the £5,000 grant, the £2,000 first time buyer grant and the £3,000 subsidy. Are we making fish of one and flesh of another? In fact, that is the situation with people who are in arrears with building societies. I know of people whom I cannot assist further and who are in dire conditions because of building society loans.

I have written to the Minister of State, Deputy Fergus O'Brien, several times on the matter, emphasising particular cases.

Unfortunately, the agency is not in a position at this time to assist such a person. That is sad even when they have gone so far to assist people in other areas. I was one of the chief motivators of that scheme. I always felt, since I came into public life, that we should be doing much more to assist people to do something for themselves rather than doing it for them. That has been proven. For instance, because of the HFA loans and other grants now available, we have a situation in Dublin for the first time ever, where there is accommodation available to people within a very short time of applying. In the Cork area we have gone from a situation where three and a half years ago one was waiting about three years to get accommodation to a situation where one can now be accommodated within a very short period of time. But, unfortunately, people who are in trouble because of recessionary times cannot be assisted. I wonder if we could assist them.

Some people ask about the amount of money that they owe after so many years. It should be emphasised that the agency say that one is not totally committed to paying only 20 per cent of gross earnings. There is mortgage relief on the interest. Let us look at inflation. If inflation rises at an average of 4 or 5 per cent per year, we must compare that to the position in the early Seventies when inflation was running at 25 per cent to 27 per cent. At that time did we ever envisage that a house costing £2,500 in the early seventies would be purchased after about ten years for about £20,000? That is a tenfold increase. A house for which a loan of £22,000 was given could be worth in the region of £70,000 allowing for inflation over 20 years.

The last speaker made a point that after 30 years one still owes about £8,000. Could anybody tell me what, after 30 years, that £8,000 will be worth? Very little, indeed. The way inflation is going one would probably be able to pay it off with two-monthly payments from his wages. That is the reality; these matters must be clarified. Over the last four years the HFA scheme has been a success. This is evidenced by the number of people now taking HFA loans. In Dublin alone we have nearly 1,500 houses coming on the market because of the Housing Finance Agency grants.

We must ensure that everybody in the country gets the best accommodation possible. We are inferring that, because a person wants to come out of a local authority house with a £5,000 grant and the agency loan, he is a better tenant than the other person who does not want to come out. We have no right to say that a person who is able to improve his position is a better class person than the person who cannot afford it. I will not condone that argument. Some people are worse off than others. We have no right to say that, because they are not as well off as the others, they are therefore less worthy people. For public representatives to give that impression for any political gain is most unfair. We should certainly not give that impression at any time about any class of person.

I have heard from one party — and it is not the main Opposition party — that they are totally opposed to anybody getting £5,000 to move out of local authority house because they feel that they have no right to move out. They feel that these people, who could afford something else, should stay there — that if they moved out those who remained would feel inferior because of their poorer financial position. That is nonsense. Many of the people going into those houses have £20,000 or £25,000 a year. There is nothing at all wrong with that. It is great to see two sons and a daughter — probably two carpenters and the daughter working in the bank — all of a sudden having a lot of money. The so-called Workers Party are saying that there is no way such a family should move out of a local authority house to make room for a person who is in need of it. They condone that. How unrealistic can they be as a socialist group? They say they represent the workers, which they do not, because if they had their way they would have them living in 300 square feet.

An Leas-Chathaoirleach

Could we get back to the Bill?

Mr. Cregan

I know I have moved from it a little bit, but I felt I had to make that point. It is most unfair to give that impression. The agency is not doing that. The agency has created a situation where, for the first time ever in this country, we have people owning houses who never thought they would be buying their own accommodation. This is borne out in Dublin city, where over four years ago there were massive problems with nothing available for the less well-off. That is the main point that has to be made. There is an impression that a person cannot apply for a loan unless they are 12 months on the accommodation list. That is not the true situation. Any person can apply for it. But if one needs to get the £27,500 one needs to be on the housing accommodation list and to be an official listed member for 12 months, with three of a family or more. In other words, one must have one child and then one would be allowed to get up to £27,500 plus the £5,000, plus the £2,000 and plus the subsidy. That is a total of £37,500 with a purchase order of £34,500. In other words, one can buy up to the amount of £34,000.

Did people ever dream that they would see that situation? Imagine the situation if one were to go to a building society to try to get the £30,000, if one had £3,500 of one's own. There would be an enormous cost. I have known of a case in my own area in which husband and wife were not even sleeping with each other because they could not have a family because of the mortgage repayments. The repayments to the building societies were too high.

With all respects the building societies have done an excellent job through the years. They have not perpetrated any massive robberies in the country from our people. I would readily admit that. At the same time we must admit that for the first time ever we brought about this agency loan which got a guarded welcome from some parties and a very guarded welcome from the solicitors of the State who said it was not workable. We had a situation where the solicitors of the State had opportunities to avail of building societies' privileges that they do not have with the Housing Finance Agency. That is a point that is borne out. It has been pointed out over the last few years that even with some opposition and everybody talking against it, 11,200 have availed of it. It is going to continue that way. We have created that situation and rightly so.

Mr. Fallon

I, too, would like to welcome this Bill. As the Minister said in his speech, the Bill proposes to increase the amount which the agency may borrow from £200 million to £500 million and at the same time to propose a few other minor, technical amendments to the present legislation. Senator Cregan referred to people who gave it a guarded welcome. I must confess to Senator Cregan and others that I was, at the start, a doubting Thomas. I know of a few people who were suggesting to me that they would look for the HFA at that time. I was inclined to push them towards the SDA. I am still not madly in love with the HFA because it has little difficulties, but I realise that it has given so much help to so many people that obviously they see it as very important. It has helped them to buy a home of their own, which is something we all aspire to.

My attitude to the HFA has been to ask can the applicant get a loan anywhere else — from a building society or the SDA — and, can they afford to pay that loan? If the answer to those two questions is "no," then obviously — and I would have no hesitation in saying to them that they should look at the HFA. There should be no difficulty with HFA if a person has a worthwhile job, and is under the income limits of the terms of the scheme. There is no reason, with a 20 per cent payment of his wages going to the HFA, that the full debt should not be cleared off in a period of 25 years in the same manner as the SDA and other loans. There is a big danger that we would have to watch very closely and examine as fully as possible, that is the danger that if a person has no job he can and will become a tenant of the HFA. That situation could happen in the future or at any time. It is one that we would not welcome and should not allow to happen, if at all possible. I know of cases — but not too many — in which people have actually gone unemployed in order to avail of the cheaper repayments on the housing loan. Again, that is a situation that we should not encourage.

I have always been a great fan of the SDA. I must confess that. At the moment I certainly think £16,000 is on the low side. I am an even greater fan of the special category SDA which is for local authority tenants at £20,000. The gap between the price of the house and say, the £16,000 of the present SDA, it too much. Certainly, the problem there is that a young couple have to borrow elsewhere from a bank or from a credit union an extra £5,000, £6,000 or £7,000, which can be crippling.

I know that a call has been made many times for an increase in the SDA. I would agree with that, but I can see the Minister's thinking that perhaps it should not go up that way but that we should get our money from pension funds, as we are getting in the HFA, and that is preferable. Nonetheless, the SDA, in my opinion, despite the high repayments is still a very attractive scheme. Again, with the £5,000 grant, which is there for the local authority tenants who vacate their houses, it is all the more attractive. Indeed, I am pleased with this £5,000 grant that has been mentioned. It has, more than anything, helped to increase the demand for the HFA right across the country.

While the HFA has been successful — in my own county there have been nearly 100 loans in the past year — the house building industry continues to plummet. I was reading in yesterday's Irish Press the statement by Mr. Tom Reynolds, managing director of the Construction Industry Federation, that in the first ten months of this year a 16 per cent decline was recorded in the Irish private house building sector. Again, in the knowledge that the HFA is successful, I find that hard to believe; but obviously he knows. The general feeling from builders in my own area is that house building, despite the HFA, is not on the increase at all. Certainly, Mr. Reynolds' figures could well be accurate. Indeed, the whole construction activity in Ireland next year is forecast to fall by 7 per cent compared with an EC average of 1.1 per cent. Obviously, those figures are very depressing indeed.

An artificially high price has been created for second-hand houses. This is primarily as a result of the HFA. Under a building society or the SDA loan, the size of the loan reflects the level of repayments. In the case of the HFA, as we all know, repayments are based on income. The repayments will be the same for an applicant on a £20,000 loan as it will be for a £25,000 loan. Applicants, in my opinion, are not particularly worried about the price of the house. They are not concerned about the amount being borrowed and this helps to create an artifically high price for second-hand houses. Obviously, it must be a worrying feature that people should not care now much they pay for a house in the knowledge that it is still costing them 20 per cent of their salaries.

There is a difficulty there too. This may be a little contradictory of what I said, but a question arises of who qualifies for the loan. As I understand it reading from the leaflet, you must have a certificate of your own and, if married, your spouse's gross income for the previous tax year in the form of a P60 of taxable income; or, in the case of farmers and persons who are self-employed, a copy of the last agreed tax assessment together with the accounting date from the Inspector of Taxes in respect of the preceding tax year.

That paragraph would indicate to me that it excludes people who might be, for whatever reason, on a permanent disability pension. Take the case of a person in receipt of a permanent disability pension of, say, £120 a week, that is, about £6,000 per annum, normally that person should qualify, assuming that person is a tenant of a local authority, for a loan of £18,000, which is three times his £6,000 per annum, less £5,000, which would give him a loan of £11,000——

An Leas-Chathaoirleach

Senator Fallon, I do not like interrupting any of my colleagues, but this Bill is dealing with additional funding to the Housing Finance Agency. You can, of course, make references to grants, etc., but not in detail.

Mr. Fallon

I am endeavouring to avail of this opportunity to highlight the little difficulties. I am totally in support of the Bill. I want to make that clear. If it can be improved, then why not improve it? The category of people I have mentioned are denied, it would appear, getting a loan because the application says it must be earned income even though that person, from the funds he has, would be able to pay a loan of the size I mentioned.

Coming back to the Bill and to the HFA generally, I would like to refer to — and perhaps the Minister will comment on it — the variable interest rate. Initially, as we all know, it was inflation plus 3½ per cent. Inflation at the time was at a high rate. Now it is inflation plus 5 per cent. I am wondering why it should increase. It seems it increases because of the people who are providing the money, the financial backers, the pension funds, and so on. The worry I would have is: will that 5 per cent become 6 per cent next year? Will it become 7 per cent the year after? Obviously, that would defeat the whole purpose of the Bill. The CII report indicates that next year our Government should base their budgetary strategy on a 3 per cent inflation rate. Obviously, that is going to make the HFA that much more attractive, provided the variable interest rate does not go up again from 5 per cent to 6 per cent or 7 per cent or more. Perhaps the Minister would comment on that.

There is also — and I do not wish to detain the House — the question of the redemption of a loan. The Minister might also comment on that. This always causes problems for many people. It seems there is no difficulty in the ordinary straight forward redemption of an SDA or building society loan. In this case, bearing in mind the interest rate which at the moment is 10.2 per cent on repayments, the redemption rate, as I understand it, is now running at 14 per cent. This seems very high. It seems to me it is a figure that has been kept deliberately high, just in case inflation suddenly gets out of hand and begins to rise again. I would imagine that is the thinking behind it. If I am wrong, the Minister will tell us.

What I understand happens is this. The redemption figure is set at 14 per cent and perhaps eight months or a year or a year and a half later, if it is proved that the inflation rate is not what we thought it might be, then further money is given back to the person redeeming the loan. I am wondering if that could be speeded up. Could we be more specific and more definite and give the correct redemption at the time the loan is redeemed? I support the view expressed that Irish people like to own their own house. I was a doubting Thomas. But I feel there is a lot of merit in the HFA loan. It has without question given homes to people who would never have a home. The very fact that you are looking for permission to increase the amount which the agency may borrow from £200 million to £500 million is in itself a success story.

The principle behind the type of loan — the income-related mortgage — is basically sound. It is sound as long as the prices of houses can continue to be reasonable and as long as people continue to have a job and inflation remains at a reasonably low figure. If those three factors continue, I believe that the HFA will certainly continue to be in demand in a big way. It will continue to give people who might never have owned a house in their lives or who might never have dreamt of owning a house in their lives, the opportunity to own their own homes.

Mr. Magner

I will try to stay within the terms of reference you outlined earlier on and try to engage your humour to see how far adrift we can go from time to time.

An Leas-Chathaoirleach

Do not push it too far, Senator.

Mr. Magner

We will see as we proceed. On one of the comments that Senator Fallon made vis-a-vis the Construction Industry Federation and Mr. Reynolds, quite frankly the farmers have a reputation for the béal bocht and so on — not ever getting enough. At times that complaint does not have a great deal of validity, but at other times it has. There is one thing consistent about Mr. Reynolds: he is constantly preaching doom and gloom, yet any objective assessment would show that the best friend Mr. Reynolds has is the present Minister for the Environment. Without the activity generated by the Minister's Department, the friends of Mr. Reynolds, his associates in the building profession and the business profession, whose money is invested in the Cayman Islands and elsewhere, would have nothing to do. The reality, as far as the building industry is concerned, be it houses or roads, is that it is all generated by the State. It is time Mr. Reynolds realised that. Some of his colleagues say that the only way we can do anything about the construction industry is to bring the Opposition back into Government.

This Bill extends home ownership. In Ireland there is a very high ratio of home ownership. Obviously, it is the preference of very many people. I found it very interesting that during a general election in Britain three years ago, when Michael Foot was leader of the British Labour Party, one of their main policy planks was the non-sale of local authority housing. As part of their party programme they prohibited the sale of local authority houses. I went on a canvass with one of their candidates and I found it was a most unpopular stance to have. It was quite obvious from the response that people wished to own their own houses. That policy in the British Labour Party was subsequently changed after their defeat. There is a desire by people to own their own houses not just for the sense of ownership but also because they have a capital asset which protects them in years to come and they are not paying rent for which there is no return.

Activity within the Department such as the reconstruction grants and the various building grants has transformed the situation in the last number of months. The position today is that the Department cannot cope with the applications. There are thousands of applications coming in from around the country. It is very obvious that the amount of work and employment that will be generated from this scheme will be very very significant. Senator Fitzsimons in making his contribution mentioned the problem that one has to be a registered builder to avail of these grants. It prevented, for instance, a handyman from doing his own extensions and repairs.

The reality is that it is not the Government's job nor should it be their intention to expand the black economy. The black economy at the moment is healthy enough without active assistance from the Government by way of taxpayers' money. It is absolutely necessary that the people who apply for those grants deal with a legitimate builder who is within the tax system and who contributes tax in the normal way for these commercial people. As I said at the outset, this Bill extends and helps to extend the principle of home ownership to people who aspire to have their own houses. I agree completely with Senator Cregan who spoke about differentiating between those people who avail of the facility and people who wish to remain local authority tenants. There should be no distinction. It is a matter of choice. The State has one obligation, that is to house those who cannot afford to house themselves. That is its major obligation.

The other obligation which it now takes upon itself is to encourage people who are in a position because of improved financial circumstances or whatever to own their own house. The State is right to encourage that sort of movement because it has two very important effects. It frees a local authority house for somebody on the list and it creates employment in the construction industry. I welcome the Bill. I simply wanted to put on record my appreciation of the work done by Deputy Kavanagh not just on this issue but certainly on the housing grants issue which is a major one and recognised throughout the country as a most imaginative decision by the Government and by the Minister concerned.

An Leas-Chathaoirleach

Senator Magner named an individual in a critical manner and when a person cannot defend themselves——

Mr. Magner

I apologise and I withdraw that.

Mr. Smith

I do not know whether I should follow Senator Magner in deference to your wishes by saying that I am going to keep within the terms of what would be the normal ambit for a Second Stage debate because Senator Magner, who has just left, went into a general election campaign in another country and into house improvements grants. I take it that you have moved somewhat away from your earlier position in allowing that.

An Leas-Chathaoirleach

Not at all.

Mr. Smith

Since house improvements have been mentioned I what to take this opportunity of generally welcoming them, but to say that in trying the scheme to accredited builders the Minister might take into account individuals who are able to provide and carry out extensions to their homes. There are categories of people who are in a position to do this work themselves and it is important that some consideration would be given to that aspect of the scheme because it may well mean that they might not be in a position to afford to call in an accredited builder. Having said that, I was one of those who was absolutely sceptical about the Housing Finance Agency scheme.

I have no problem in admitting that it has been a much greater success than I anticipated some years ago. It goes without saying that groups of people who would have no opportunity of owning their own houses have been facilitated by this scheme. It opens up a new source of finance for housing at a time when the housing and construction industry is in difficulty. We need however to further educate the people as to the long term implications of the Housing Finance Agency loan. It is possible for persons to buy out their houses completely within 20 to 25 years given a set of particular circumstances. Taking past history into account and different rates of inflation obtaining from time to time and external pressures over which one has no control, it is very important that people engaging in this loan, as far as the operation of it is concerned, would be fully abreast of its operation and aware of these difficulties and not find themselves, after paying the loan at whatever rate is applicable over 25 years, that they are not next or near to actually owning their houses.

It was because of this factor in the beginning that I resisted to some degree the implementation of the Housing Finance Agency scheme because there is a great traditional historical attachment in this country to home ownership. Long may that continue but we are remarkably out of step with what is happening in other parts of the world in our determination to own houses from the very beginning. There are instances now, because of job insecurity and other problems that have arisen in the economy, where it may not be wise to pursue that course for all categories of people with the same determination as has been the character of the scheme in the past.

If we could be sure that we would have a continual low inflation there is no doubt that the provision of additional funds in this scheme would be very worthwhile. I would echo also the point made by Senator Fallon and other speakers that while it cannot be limited to new housing construction schemes we should try to ensure that on balance it is aimed at construction of new houses rather than inflating as it sometimes can the value of secondhand houses.

There are just one or two queries that I would like the Minister to reply to in relation to the situation where, because of varying situations which I referred to a few minutes ago, the principal earner can actually change in a family from one person to another. I understand that under the terms of this scheme where the principal earner is paying the loan and dies during that year, the normal house protection insurance policies will cover that loan and that is the end of it and everything is secured. Where the principal earner changes during the lifetime of the loan — and it may be even intermittent change — because of employment problems which we are all too familiar with, is the scheme or the agency empowered to make changes in order to ensure that where the person who was the principal earner dies but who is not the main earner in that particular year, that family would be covered in the same way as they are covered with building society and SDA loans. It is probably early in the stages of this scheme to be referring to matters like that but these legal problems, from time to time, can arise and we should take account of them.

Overall, the House welcomes the Bill provided that we can have conditions of low inflation. There is no doubt it can add to the stock of houses owned by categories of people who would not otherwise own them. In spite of other pressures there is no doubt also it will help the housing construction industry. We have to be factual with people and they have to understand that there is no guarantee that after 20 or 25 years they will own their own houses.

Mr. Loughrey

I broadly welcome the Bill. It is increasing the amount of money available to operate the finance agency. There are a few comments I would like to make in this regard. It would be a little unfair of me to suggest that the Opposition party were opposed to the agency simply because they were in opposition. The real, honest position is that many of us did not know how it would work and were not sure how it might apply and how people might get caught up. The facts of life are that the scheme has caught on.

In 1982 in County Donegal there were 435 ordinary SDA loans, 25 Housing Finance Agency loans; in 1983 there were 395 ordinary SDA loans and 44 Housing Finance Agency loans; in 1984 there were 405 ordinary SDA loans and 81 Housing Finance Agency loans, and to date this year there have been 264 ordinary SDA loans and 75 Housing Finance Agency loans. The number has trebled in three years. There is still an element of doubt and I am not so sure that everybody understands that the loan scheme is available. I would declare immediately that I have an interest in this, not just as a public representative but as an auctioneer and as an agent for a building society. When I say the building society agency is not related to it, I want to declare my interest lest some public magazine or paper at some future time might declare my interest for me.

Mr. Lynch

That is not vested.

Mr. Loughrey

It is not vested but it is factual and not very profitable. The scheme is useful. It has been undersold certainly by the local authority with which I am familiar, Donegal County Council. They have undersold it likewise because they were afraid of it. I am not so sure I totally understand the implications of it despite the fact that I have to try to explain it as often as a sale may arise as a result of the scheme. For instance, in the documentation supplied by my council, where a person borrows £20,000, starting in the previous tax year with an income of £7,500, after a period of 13 or 14 years that person can owe as much as £34,000: that assumming an annual inflation based at 10 per cent. If annual inflation is running lower — it is the aspiration of this and other Governments that inflation would run lower — salaries will not rise as quickly as they have been rising, therefore, repayments will not rise as quickly as this would suggest and ownership might not take place as early as this anticipates, which is 23 years. That, in itself, is not necessarily a bad thing because we have a very high percentage of house ownership in this country, higher than most European countries. I am not so sure that it is a good idea that the burden of repaying on a house loan should be met by one generation, by one man and his wife — perhaps this is not so when the family come to an earning stage but by and large it is. The idea of spreading the loan over that and the next generation is not such a bad idea. Should the figure keep rising the amount owed on the house becomes higher than the house value because house values remain more static, or in the present recession might even drop as the years go on. So the person borrowing the £20,000 owes £34,000 after 14 years and, assuming that the house value will have increased somewhat but may not have reached that level, he feels he is in trouble. On the other hand, you can take the simple viewpoint that, I own this house, it does not matter how long it goes on until I complete the repayment of the house but the payments I am making are relevant to my income and, therefore, it is a good thing that I own the house rather than pay a rent on it.

I would ask the Minister to consider a couple of aspects of the scheme as it exists. A person in a special category has been housed. That person has had the benefit of rehousing by the local authority. Another person goes a step further and proceeds to start to buy out his house — it may have commenced before this scheme was introduced — and because he is buying out the house he is losing a substantial amount of capital. He may have made more of an effort to improve the house while he is in it or since he started to buy it out. Yet his ambition might have been — if he had known that a scheme like this would ever come on the horizon — that he would like to get out of that house, despite what Senator Cregan was saying. I am not sure if he himself was complaining or his opposition in the Workers Party. I think that almost all of them would have an ambition to get out of the scheme into their own house that they themselves provided or bought. Therefore, that person who has made an effort to help himself is suffering because of that effort. I am not so sure that is good.

The second aspect is related to the double situation of the finance agency and the £5,000 grant. A person gets £5,000 by vacating his local authority house and handing it back to the local authority. Then they may borrow up to £27,000 from the Housing Finance Agency. But there is a limit of 90 per cent and on a £30,000 house they are asked to find £3,000 cash. We are saying to a person, who you know is earning £9,000 or may be earning more than the £10,000 limit: that in their circumstances it would be difficult for them to get money from any other source, that we know that the ordinary house loan of £16,000 or £20,000 would not meet the cost of their house, that we would like to facilitate them. Therefore we produce this scheme and expect them to find £3,000 cash. Many of those people cannot find £3,000. The fact that they qualify and are being facilitated for this scheme, suggests that the amount of money they can find each week to hand back in repayments is less than the average person can and yet they still have to find this larger sum of money. My figures may be wrong but on an ordinary SDA loan of £16,000, 95 per cent is applicable. In the special category SDA loan of £20,000 98 per cent is applicable. Yet in the Housing Finance Agency it is 90 per cent in both instances.

There is then the matter of legal costs. When you are in the auctioneering business you meet these cases. I must say in all honesty that all auctioneers have not been forthright with clients in explaining to them the costs they were going to incur. Many clients have found themselves in dire straits. That is one example, the legal costs, bridging interest have not been explained fully in some instances with other lending agencies. Where do the couple find the £3,000 or £4,000 which they require? It is almost impossible. While I think the scheme is working and the figures from my own county of Donegal have moved from 25 people availing of the scheme up to 75 in four years, I am still a little sceptical about it.

In 1982 in Donegal the SDA loans were £3.7 million. It moved up to £4.1 million and has levelled off at £3.8 million. The Housing Finance Agency loans were nil in 1982 and went up from £.4 million to £1.2 million and to £1.75 million. That is a large sum of money, a total of £5.55 million in loan aid going into Donegal. That must surely be welcomed, side by side with the recent announcement of the reconstruction grants which were mentioned by one or two speakers from both sides of the house and which, with your indulgence, a Chathaoirleach, I would like to mention in this regard. The new grants are to be welcomed; they are a great boost, particularly in rural Ireland and in inner towns and cities. We hear a lot about inner cities but not as much about inner towns, small towns like Ramelton, Milford, Letterkenny, Raphoe and Convoy where the inner part of those towns is dying in almost all of them because the local authority development or private development is taking place on the outskirts. There is always a millionaires row in any town. The hearts of those little towns are dying off. I believe that this new grant of £5,000 for the pre-1940 house will revitalise the hearts of those towns, and that type of thinking is good. That type of thinking, aligned with leaving alone the schools and the Garda barracks in those villages and towns will help to keep those rural towns and villages alive.

One case I have come across creates a lot of sadness. It is that of somebody who has endeavoured to carry out his own improvement and finds half way through that is has been made known that there is a grant available but the work must not have commenced. I am making a special appeal to the Minister publicly, as I have already made it privately, that an applicant may make an application, have the inspector along to examine the improvement and where there is an amount of work remaining to be done, the cost of which is greater than the amount of grant available, that person will still qualify for whatever grant is available. I would ask the Minister specifically to mention that in his reply, not to reply formally to it, but to go back to his Department and see if he can do something about it. These cases have arisen.

All these reconstruction grants are to be welcomed. It will take some time before the benefits go right through the community, but there are very major benefits — the direct social benefits to the householders, the indirect benefit to the builders, to the people they employ, to the people who provide the materials and the undisguised effort to get people moved out of the black economy and into doing work that is above board. That is no harm. That is very useful. The stage has been reached where it is almost impossible to get people to work who are paying their taxes. If that is unpopular, then so be it.

Regarding the Housing Finance Agency, I would ask the Minister to look at the possibility — I do not know how he can do it without totally buying the houses for them — of arranging some way to find that £3,000 or £4,000 that can be crippling. For years past people have been coming on to the local authority housing lists who in normal times would have been attempting to build or buy their houses. They have stopped. We have a very long housing list in Donegal. I do not think we will ever meet it. My colleague, Senator Cregan, says that in Cork the need is almost satisfied. I believe that in Clare they are ahead of themselves. I do not know what it is like elsewhere. That is not the situation in Donegal, possibly because we are not encouraging the schemes that exist. I believe that is part of it. I have time and again asked officials of our county to publicise the schemes. There is still a little bit of fiddle. I would suggest that the Minister or his Department do another publicity campaign to remind people of what is available. In the property pages in The Sunday Tribune or other papers every week you will see houses for sale at £27,000, £27 per week repayments. This can be presented by auctioneers so as not to be always totally true but near enough to it not to be a lie or not to be wrong. They do not spell out the hidden costs, and there are very real hidden costs. People must be protected from the hidden costs and yet must be advised of the real grant aid and loan aid that is available.

By and large, I welcome the extra money that has been made available to the scheme. I believe that a publicity campaign should recommence on it to advise people of its availablity. The Minister should look at the two aspects I mentioned: the money that has to be found — roughly 10 per cent — and those people who have started to purchase and who have spent some money and have probably improved their house and made it more habitable than the one next door. This is very often the case. I welcome the scheme generally.

Mr. Lynch

I would like to preface my remark by supporting Senator Loughrey in regard to home improvement grants. We all know that this grant scheme was abused in the seventies and eighties and, unfortunately, was discontinued by this Government. I understand that at that time people actually were building extensions and turning them into garages. That was an abuse of a grant scheme. What Senator Loughrey says makes common-sense to me because people do not apply for a grant for a bathroom — more important still, they do not build a bathroom and provide water and sewerage unless it is absolutely and totally necessary. Some flexibility at this stage should be introduced into that scheme. No matter what we say here or what is on the application form, people simply do not realise that it is an absolute condition that the work must be inspected by a Department inspector prior to commencement in order to qualify for the scheme.

Similarly, I would like to support Senator Smith in what he says. I am a member of the Oireachtas Joint Committee on Small Businesses. We have completed a study on construction and one of our main aims was to try to eradicate this black economy that is rampant in the country at the moment. All the members of the committee felt that where an unemployed tradesman wished to carry out repairs to his house he should, if at all possible, be allowed to do so and qualify for the grant. It is a minor adjustment to that home grant scheme which our committee recommended. Unfortunately the scheme was announced by the Government — not intentionally, I hope — taking the real gut out of our report in advance. The scheme is a recommendation from our Joint Committee and we fully support it. I welcome the Bill which, in essence, will relieve the HFA of the necessity to rely as at present to a great extent on short term borrowing, which is costly but understandably necessary due to the restrictions under which the agency operated up to this.

Like many other Senators who spoke when the scheme was introduced in the late autumn or early winter in 1981, it met with a mixed reaction from members of local authorities wo were very much involved in the loans and grants system. I viewed it with a certain amount of scepticism mainly because of repayments and the time schedule that would be involved on a percentage basis of income which is now at a reasonable 20 per cent. There is a need to fill the gap that exists between people who qualify for the SDA loan and those who are slightly over the limit but who have not got the financial resources to provide their own homes.

The HFA scheme has been successful in my own county but in certain areas it has not got off the ground. It may be because people who consult members of local authorities are still being told to be wary of the scheme, that their grandchildren could be paying off the mortgage. In County Meath it has got off to a good start. The number of applications up to October was 460 and of those 320 have been approved. About 250 of these applications have been completed and payments made. The Minister should also take note of the fact that the £8,000 limit on SDA loans for all practical purposes is bringing in a category of people who have a family to rear and their income is under £8,000. They could not be categorised as people with full ability to repay and meet their commitments. My county council recommended that the SDA loan upper limit be increased to £9,000 and that the HFA upper limit be increased also. That proposal is with the Minister at present. There is merit in that idea.

In the Oireachtas Joint Committee Report published last Thursday we noted the fact that we interviewed the Housing Finance Agency. We were more than pleased with the performance of the agency. There are about seven people operating the scheme and they have proved to be very efficient. The number of staff is astonishingly low for the amount of money involved but they are gradually computerising the system, which will make it even more effective. We were concerned with the delay in sanctioning payments and issuing cheques. This has now been brought down to about three weeks. It is interesting to note that the State was responsible for 43 per cent of new house purchase loans in 1984 through the Housing Finance Agency and through the SDA loans provided by local authorities. We took evidence from the representatives of the Housing Finance Agency and we were impressed with it performance in providing 11,000 house purchase loans totalling £217 million since the inception of the scheme in 1982. We accepted that the issuing of long term index-linked stock is the most appropriate form of funding for any agency which provides 30 year house purchase loans.

The committee felt that the present restriction confining the issue of this stock to insurance companies and pension funds should be eased to include other financial institutions. I should like the Minister to take special note of that recommendation from our committee. Such a change would give the agency more flexibility in arranging its funding. We found the agency had to rely heavily on short term borrowings in order to boost its financial position and this was more costly.

I should also like the Minister to give some thought to another proposal that our committee made with regard to legal and conveyancing arrangements. We find that the real problem does not lie with the repayment of the SDA loan or the HFA loan. It is what happens in between where people have to rely on bridging finance. The banks have nothing to shout about in this regard. Our proposal is that as a first step in reducing legal fees and simplifying the conveyancing system, the requirement that the house purchaser and lending agency each have their own solicitor should be dispensed with. Serious consideration should be given to ending the solicitors' monopoly of conveyancing. That is a very good recommendation. I hope that the Oireachtas Joint Committee's report on construction will be before this House very early in the new year so that we can have an indepth discussion on it. I welcome the Bill and support it.

Mrs. Bulbulia

Like the other speakers, I am pleased to welcome the Bill and support it. Members of the Seanad will recall that the original Housing Finance Agency Bill was passed in this House early in 1982. In December of 1982 the Seanad passed the Housing Finance Agency (Amendment) Bill, 1982, and here today we are considering the second Housing Finance Agency (Amendment) Bill, 1985, which is a remarkable amount of legislation for what was a fledgling institution such a short time ago. The fact that we are debating this Bill gives us an opportunity to reflect on the progress, growth and development of the Housing Finance Agency since its inception. I propose to briefly look at that.

As a member of a local authority it has been my task to promote the Housing Finance Agency, whenever I felt it was appropriate and proper to do so, with suitable couples who were seeking housing finance. It is important that people borrowing from the Housing Finance Agency would find that it met their particular needs. Members of the Seanad who are also members of local authorities, which is the case with the majority of Senators, will agree that the body of representations they deal with are heavily weighted with urgent housing requirements. These have to be taken seriously. The need to own a home underpins the deep-rooted desire and need that we all have for security and stability and a basis in our lives. That is the right of all young couples who are embarking on marriage and a shared future together.

As Senator Lynch said, when the Housing Finance Agency was first mooted it occasioned mixed reaction from commentators at the time. There was a great deal of cynicism and an even greater misunderstanding of what it was attempting to achieve. Many people, including Members of this House, had misgivings about how the Bill would operate. The fact that we are considering an amending Bill to the Housing Finance Agency Act and that that Bill increases to £500 million the limit to which the HFA may borrow indicates that the agency has fulfilled a need which is beyond our wildest expectations, when we remember that the present borrowing limit, as specified in section 10 of the Housing Finance Agency Act, is £200 million.

I would like to add my voice to what other Senators have said and I wish to pay a sincere tribute to the managing director of the agency, Mr. Jim O'Hare, who is so ably assisted by the chairman of the board, the board members and the small staff of the agency, to which Senator Lynch referred. It is interesting that such a large amount of capital is being administered by such a small body of people. It speaks well for the dedication and thorough manner in which the people who work at the agency manage their affairs. To get a fledgling organisation off the ground so effectively is the best possible tribute to those who organise and administer the agency on behalf of the State.

The objectives of the HFA as laid down in the legislation are first, to provide long term finance for house mortgages to certain categories of persons. The perceived need for the agency was to provide mortgages in what has come to be called the gap area between the normal local authority mortgage schemes, otherwise known as the SDA loans, and the other mortgage institutions. It is inevitable that with any new scheme the lack of experience in demand patterns will give rise to a problem of arranging finance. When that demand pattern is further upset by the introduction of special incentives, as arose in the case of the £5,000 grant for local authority tenants and in addition increased subsidies, it rendered the problem being faced by the agency far more acute. This difficulty was even further aggravated by the increased reliance on short term borrowing to bridge the gap between long term funds available and current demands and the dramatic increase resulting in short term borrowing costs.

Secondly, the Housing Finance Agency was charged and obliged to have heretofore untapped sources as its funding reservoir. Initially, it operated on the basis of short term borrowings from commercial institutions. Then, following amending legislation, it became funded mainly on a long term basis by way of index-linked bonds; and the enabling of the agency to raise funds by means of promissory notes or bills of exchange, which we are dealing with today, is a very welcome feature of this legislation. The agency was experiencing some difficulties in obtaining funds at a rate which would enable it to lend to mortgagees at a reasonable rate. This inability to obtain sufficient long term finance as and when required has led to the additional need for increased short term borrowing.

A third important objective of the agency was that, taking one year with another, all the costs of the HFA were to be met. The bottom line as far as the financial stability of the HFA is concerned is that it should not lose money. This raises interesting questions as to whether its basic objective is a commercial one or a social one or, as I expected it probably is, a mixture of both. It is inevitable that with some clients payments will slow down and there will be a certain percentage of failure. This causes losses to the agency and raises the question of a bad debts provision which should be built into the system and reflected in the lending rate. I would be interested in hearing what the Minister would have to say about that and I would also ask him to consider the possibility of having local collectors dealing with Housing Finance Agency loans, perhaps operating through the local authorities or at least under their aegis in some way. That would be a useful development.

The factors to be quantified in this area are (1) the accrual estimate of the loss which is being incurred by the agency, and (2) the level of plus factor in the lending rate to meet this. I wonder how the agency feels it should deal with its bad debts, because these are going to occur when we have a poor economic climate, despite the best efforts of Governments, and it is inevitable that people are going to default on their payments. I wonder if from time to time the agency should examine whether it should review its position in constantly issuing new loans and concentrate all its efforts on minimising loss by a concentration on improved repayments. I know that where it is necessary the agency is obliged to have forced sales from time to time. We should examine possible alternatives to deal with this difficulty.

It is evident from figures the agency have published that action would need to be taken on a number of fronts. The margin to borrowers should be increased. The measure today would probably be helpful in that we are securing long term funding from less volatile markets, and that is significant. It is important that we should have good collections; and in some cases, where it is evident that a tight financial situation cannot be coped with by the borrower, we should consider early repossession followed by a quick sale. These are matters largely for the board. I think the Government should have something to say about the determination of the brief of the board in relation to these matters.

Local authorities are experiencing an increased arrears situation on all collections due to a variety of reasons. These reasons are mainly political. They vary from cannot pay to will not pay, and of course there are family problems which make it difficult for people to meet their commitments. It is an interesting situation now with the recently introduced Bill on the homeless. I am concerned that it is the local authorities who have the responsibility of providing accommodation for the homeless. People who have taken out a loan from the Housing Finance Agency and who default on payments are then the responsibility of the local authority to house. That is a situation that is open to abuse and I would like the Minister to refer to it in his reply.

I am delighted to make my contribution to this Bill. I am very pleased to see the Housing Finance Agency go from strength to strength. Again, I pay tribute to all those concerned in its day to day running.

Mr. Mullooly

I accept that this Bill is necessary because under section 10 of the Housing Finance Agency Act, 1981, the agency is subject to a borrowing limit of £200 million. The main purpose of this Bill is to increase that limit to £500 million. The Minister did not indicate when the existing limit of £200 million is likely to be exceeded or if it has already been exceeded. He said that the additional £300 million which is being provided for in this Bill is likely to be sufficient to meet the needs of the agency for approximately three years.

This Bill, of course, does not mean that there will be an extra £300 million immediately injected into the house building sector of the construction industry. The £300 million will be spread over at least three years. The amount which the agency may borrow in any particular year will be fixed in the annual capital programme. Before the introduction of Housing Finance Agency loans the only loans which were available from local authorities were the SDA loans. One would have thought that the introduction of the Housing Finance Agency loan scheme would result in an increase in the total number of loans being processed and granted by local authorities. But this has not happened because, as the number of Housing Finance Agency loans has increased, there has been a considerable reduction in the number of SDA loans.

Therefore, the overall number of people availing of loans for the purchase or construction of houses has not increased. In fact, it has decreased.

One of the factors which has attracted borrowers to the Housing Finance Agency loans is that the maximum Housing Finance Agency loan is £22,500 for the ordinary borrower as compared with £16,000 for the ordinary borrower under the SDA loan scheme. Therefore, the Housing Finance Agency loan scheme has not generated any increase in house construction or any improvement in the demand for new houses. It is true to say that this Bill will not make any contribution whatever to reducing the record levels of unemployment in the construction industry and particularly in the house building sector. Senator Fallon said that Mr. Tom Reynolds, managing director of the Construction Industry Federation, said that in the first ten months of 1985 a 16 per cent decline was recorded in the private house building sector. One of the major factors which has contributed to the decline in the house building sector is the 100 per cent increase in VAT which was imposed on the building industry in last year's budget. This has led to a decrease in the number of new houses under construction in the current year and, indeed, there has over the last three years been a considerable decrease in the number of new private house completions. Senator Fitzsimons referred to the fact that in 1980 there were over 23,000 new house completions and that in 1984 that figure had dropped to under 18,000. Therefore, if we accept Mr. Reynolds' projections, the number of private house completions in the current year will be down to a figure under 17,000.

During this debate passing references have been made to the recently announced house improvement grant scheme. I would like to make a passing reference to that scheme. Under the conditions of that scheme the work involved can only be carried out by a registered building contractor. Is the Minister aware of how difficult it is at present for a person to become registered as a contractor? I am aware of the case of a man who was for a very long time employed in the building industry. Approximately two years ago that man became redundant. He had to go on unemployment benefit. He became aware of an opportunity to tender for some local authority houses which were advertised for tender. When he went to the local authority to get the necessary tender forms and to discuss the matter with the local authority he was told that a tender would not be accepted from him unless he was registered. He was told that the procedure for registration was that he should go to his local tax office and that there would not be any difficulty about becoming registered as a contractor. He went to the local tax office and explained his situation there. He explained that he wished to tender for some local authority houses which were advertised for tender and that he had been informed by the local authority that he had to be registered before a tender would be accepted from him. He was asked what work he had on hands at the time. He explained that he did not have any work on hands, that he had been employed in the building industry but had become unemployed and was in receipt of unemployment benefit and had not worked since he had become unemployed. He was told that he could not be registered unless he had some work on hands and was advised to go back to the local authority to tender for the work in question and if he was given the contract for the work then he would be registered. He went back to the local authority and was told the same story he was told on his first visit there. The time for acceptance of tenders expired and he did not have an opportunity to submit a tender because he could not register as a contractor. I sincerely hope the Minister will use his good offices with the Revenue Commissioners to ensure that this red tape will be done away with. Otherwise there will be a shortage of registered contractors to carry out the works which will be approved under the house improvement grant scheme.

The first sentence of the explanatory memorandum which was circulated with the Bill states that the main purpose of the Bill is to increase to £500 million the amount the Housing Finance Agency may borrow for the making of loans for the construction or building of houses. The reference in that sentence to the construction or building of houses is a little misleading in that at present almost 60 per cent of the Housing Finance Agency loans which are approved are approved for second-hand houses. Approximately 40 per cent, or slightly in excess of that, of the loans go towards the purchase of new houses.

The categories of persons who qualify for Housing Finance Agency loans exclude certain people. For instance, there does not seem to be any provision in the scheme for persons over 55 years of age to obtain to a loan under the Housing Finance Agency scheme. Take the case of a tenant of a local authority house who wishes to purchase the house in which he is living. That tenant will not qualify for a Housing Finance Agency loan; but, if he decides to buy the local authority house after it is allocated to him and before he has started to pay rent for it, then he is eligible for a Housing Finance Agency loan. I believe there is an anomaly there. It is something the Minister should look at and it is an area where he might make a recommendation to the Housing Finance Agency because, while the conditions applicable to Housing Finance Agency loans are made by the Housing Finance Agency, they are subject to the approval of the Minister for the Environment and the Minister for Finance.

The Minister should make a recommendation or a suggestion to the Housing Finance Agency that a tenant who wishes to purchase the local authority house in which he is a tenant should be allowed to do so and he should be eligible for approval for a Housing Finance Agency loan. It is conceivable that a person might decide, in a matter of months after becoming a tenant in a local authority house, that he wished to purchase that house. Under the present conditions of the scheme he is not eligible to do so. The amount of the loan is what makes it attractive as compared with the SDA loans. But again, like the SDA loans, one of the snags in the scheme is that generally speaking an applicant for a Housing Finance Agency loan must be a first time house buyer or building a house for the first time.

Previous ownership of a house debars a person from qualifying for a Housing Finance Agency loan, unless the person is moving to a new area or moving more than what is referred to as commuting distance away from the area in which he is living. I feel that in both the case of SDA loans and Housing Finance Agency loans, if this condition were removed, it would generate considerable activity in the house building sector and in the housing market. Many people, for family reasons or other reasons, find that after a number of years their existing house is not suitable and they wish, if they had the opportunity to do so, to move into possibly a larger house or possibly a smaller house. I believe that type of movement would generate activity in the housing market and in the house building sector. The fact that both those loan schemes are generally confined to first time house builders or house purchasers is an inhibiting factor as far as that type of activity is concerned.

Some other speakers referred to the fact that the Housing Finance Agency loan can escalate to an enormous figure and that a stage can come during the repayment period when the amount owed on a Housing Finance Agency loan may be considerably in excess of the value of the house. That will create serious problems in the years ahead for some persons who have borrowed under this scheme. I believe the implications of this aspect of the Housing Finance Agency loans should be spelt out far more clearly for intending borrowers. The local authority, the agency which implements the scheme for the Housing Finance Agency, should have discussions with every applicant for a Housing Finance Agency loan. Indeed I would go so far that every local authority should have an official who was well versed in all aspects of housing loans and financial matters, who would discuss with every applicant for a housing loan every aspect of that loan. Particularly in the case of the Housing Finance Agency loans, he should point out the implications to would-be borrowers.

In the case of the Housing Finance Agency loan it is also important that it should be emphasised to borrowers that they should, if they can, repay above the minimum amount in order to keep the debt from escalating. For instance, a person with an income of £7,500 per annum, who is under 40 years of age, can qualify for a £22,500 Housing Finance Agency loan. Now at the minimum repayment of 20 per cent that person will be paying back £1,500 per annum and that is considerably less than the annual interest on the £22,500. Therefore, the difference between the repayment of £1,500 and the interest on the £22,500 is added on to capital causing the debt to escalate year after year. That person might be in a position to pay more than £1,500 in such a case it should be emphasised to that person that it would be in his or her own interest to do so.

Changes in the conditions of the Housing Finance Agency loans are made by the Housing Finance Agency but are subject to the approval of the Minister for the Environment and the Minister for Finance. One change which has been made since the scheme was introduced is that the minimum repayment has been raised from 18 per cent to 20 per cent. Indeed, the minimum repayment was less than 18 per cent in the case of those persons who received only a loan of two or two and a half times their income. Now for all persons the minimum repayment is 20 per cent. I should like the Minister, when he is replying, to outline any other changes which have been made in the conditions of the scheme since it was introduced.

I agree with Senator Bulbulia that there should be some bad debt provision built into the scheme because it is inevitable that bad debts will occur and nobody wants to see, if at all possible, evictions or forced sales. Other Senators have referred to the cost of bridging finance and how that cost can become a very serious burden on a borrower if there are considerable delays in the processing of the application or in dealing with the legal formalities in connection with the application. The legal costs involved in the purchase of a house have been referred to. As a result of these and other factors many borrowers today are in serious difficulties with loan repayments. The Housing Finance Agency loan scheme has a role in the financing of house purchase, but as a public representative I am reluctant to advise people to take up Housing Finance Agency loans unless they are in a situation where no other loan is available. In order words, I would only advise a person to avail of a Housing Finance Agency loan as a last resort. However, I accept that most people aspire to own their own houses and if the only way in which they can achieve that is through availing of a Housing Finance Agency loan, then fair enough.

There has been a suggestion made that the income limit for SDA loans should be increased. I would support that suggestion. I would like to see the income limit for SDA loans increased to the same level as the income limit for Housing Finance Agency loans. I believe this would give people a choice. They would have the choice then of applying for the higher loan which is available under the Housing Finance Agency scheme or the lower maximum which is available under the SDA loan. They would have the choice between the different systems of calculating repayments. The existing situation, where you have two different income limits for the two types of loan, tends to push people into Housing Finance Agency loans. That is something that is not desirable and it should be looked at.

Mr. A. O'Brien

I would like to join in the welcome extended to this Bill because I appreciate the good work being done by the Housing Finance Agency in so far as it enables people who otherwise would not be in a position to do so to buy or to build houses on their own. If we take, in conjunction with the Housing Finance Agency, the good work being done by the SDA and the recent very significant improvement in housing reconstruction grants, it must be said that the Minister and the Government are doing a good deal to improve the housing situation. The very large improvements in the grants for windows and doors and the extension of houses will play a very big part in improving the housing stock in this State. I will not debate that any further because the ground has been covered by other speakers.

With regard to the Housing Finance Agency, it would be good if there was a little more flexibility. The officers of the local authorities should have a little more power to deal with some of the cases that arise and I will cite just two and finish at that.

I had the experience of a man in Cavan who retired from the Army and sold his house because he wanted to go back to his native Cork. Having sold his house he found employment that suited him in Cavan town, but because he had sold the house it was next to impossible to get him a loan under the Housing Finance Agency. The county council officer felt it could not be done. However, I must say, in fairness, on appeal to the higher executive of the Housing Finance Agency they obliged him; but a very long time had gone by.

One last case is the case of a man who had to leave a street where there was a lot of traffic because the noise of the traffic was very injurious to his wife's health. There was evidence from a GP and a consultant that it would be wise because of the condition of her health for him to move to a quieter section of the town but he could not get a Housing Finance Agency loan. That is all I want to say. I appreciate the good work being done by the Housing Finance Agency.

Minister of State at the Department of Education (Mr. Creed)

Perhaps you would inform me how much time I have to reply?

Acting Chairman (Mr. Daly)

It was agreed this morning that we would adjourn from 5.30 p.m. to 6.30 p.m. but we will give you time if you want it.

Mr. Creed

I would like, first of all, to apologise on behalf of the Minister for the Environment, who is unavoidably absent. I want to thank the Senators, particularly those who have made a contribution to this very important Bill. While the present Bill is a fairly modest one proposing financial and technical adjustments, it has given Senators an opportunity of discussing to some degree the wider question of the progress of the Housing Finance Agency and its loan scheme which continues to attract considerable public interest, as is demonstrated by the strong demand for loans.

The provision of mortgage finance for housing, particularly for those on modest incomes, is a matter which affects the vital interests of a great many people; and the Government are concerned to ensure that all necessary steps are taken to ensure a continuing adequate supply of such finance. The measures proposed in this Bill, particularly the increase to £500 million of the borrowing limit, are urgently required to ensure the continuing smooth functioning of the Housing Finance Agency. A priority is to assist persons in rented accommodation to provide their own houses and become home owners, freeing a house for a person in need of accommodation.

As regards the situation of the construction industry, it should be mentioned that as a result of several Government initiatives taken in the interests of the housing programme the decline experienced by the house building sector of the industry has been less than that experienced in the industry as a whole in the circumstances of recent years. The setting up of the Housing Finance Agency was one such measure and this was complemented by the introduction of the £5,000 grant for tenants and tenant purchasers surrendering local authority houses and now by new schemes of improvement grants and inner city developments which were announced recently. The generous and imaginative approach we have taken in regard to improvement grants contrasts with the dropping of the old improvement grants scheme in 1980 by another administration.

I would like to refer briefly to the points made by Senators. I would like to thank them for raising those points and I am sure that consideration will be given by the Minister to any points I do not deal with here. Some of the contributions, I understand, ranged over a wider housing area than is encompassed by the Bill. As Senators are aware, the Minister commenced the Second Reading in the Dáil yesterday of the Housing (Miscellaneous Provisions) Bill, 1985, and this is a very wide ranging Bill which will give Senators an opportunity of contributing and raising points with the Minister.

Senator O'Toole expressed his preference for the SDA loans scheme. The position is, of course, that both schemes meet an essential need. The agency loan enables many people who could not do so under the SDA scheme to purchase their own house.

Senator O'Toole also referred to the relative numbers of new and second-hand houses for which Housing Finance Agency Loans were paid and suggested that the slight margin in favour of second-hand houses indicates that the agency is of little benefit to the construction industry. I cannot, of course, accept this view. In the first place most of the borrowers who did choose to purchase new houses with their HFA loans would not have been in the housing market at all without this scheme. Secondly, the health of the second-hand market is essential to the health of the housing market as a whole, and the sale of second-hand houses in many cases facilitates the purchase of a new house by the vendor or by somebody else involved in the chain of sales and purchases. It is well recognised within the construction industry that the Housing Finance Agency has been of substantial benefit to the house building sector. Incidentally, I might point out that in the first six months of this year the number of loans paid by the agency for the purchase of new houses in fact exceeded that paid for second-hand houses.

Senator Cregan raised the question of using Housing Finance Agency loans to assist householders who are experiencing difficulty with their mortgage repayments. There are many difficulties associated with such a course of action which would be at variance with the purposes for which the agency was set up. The agency, as Senators know, was set up to provide mortgage finance for the first time purchasers of moderate means.

If the agency embarked on the course suggested it would likely come to be a lender of last resort and regarded by other lending institutions as a means of overcoming their problems with defaulting borrowers. This would result in the agency having to devote a significant amount of its limited funds to this purpose. One consequence would be a shortage of funds for first time purchasers, which the agency was set up to help. In addition, the agency could end up with an undue proportion of potentially risky loans. I have, of course, every sympathy for borrowers with any lending institution who find themselves in difficulties, but I am satisfied that this is not a satisfactory means of coming to their assistance.

Senator Loughrey suggested that the agency should provide 100 per cent loans to borrowers. While such a course might at first sight be attractive as a way of bringing home ownership within the capacity of marginal buyers, there are, I fear, some serious drawbacks. Because annual repayments are based on a percentage of a borrower's income, they do not in the early years meet the interest liability accruing on the loan. Unpaid interest is then capitalised. Obviously, the bigger the loan the greater the annual addition to the amount outstanding. The result could quickly be, first, that the value of the house no longer provides adequate security for the amount outstanding in the event of default by the borrower; and, secondly, that the loan would not be paid off by a borrower by the time he reaches retirement.

Senators referred to the SDA loan scheme and, in particular, to the income limit of £8,000 and the loan limits of £16,000 for ordinary loans and £20,000 for special category loans. These limits are kept under review, but Senators will appreciate that in considering the possibility of increases the many other demands on the available resources have to be taken into account. Even with the existing limits it is clear that the scheme meets the needs of many borrowers, as some £70 million was provided in SDA loans last year and a similar amount will be taken up this year. The SDA scheme should be seen in the context of the many other incentives provided by the Government to encourage house purchase such as the £2,000 new house grant, the £3,000 mortgage subsidy and the £5,000 grant for those surrendering local authority houses.

Senator O'Toole asked where the money was being spent and suggested that the scheme was orientated towards urban areas. It is, indeed, time to say that the Housing Finance Agency scheme has proved particularly attractive in urban areas. In 1985 one-third of the total allocation of £90.5 million will be utilised in the Dublin area. This is a reflection of the response to the scheme from the public and, of course, of the population pattern whereby a large proportion of our population is concentrated in that area. However, as the Senator pointed out, the SDA scheme continues to be very popular in his own area and in many other areas also. The provision of funds for mortgage finance must be seen in its entirety and the SDA and the HFA schemes are complementary. It is also true to say that the Housing Finance Agency scheme is by no means confined to urban areas and significant numbers of persons in rural areas are also availing of the schemes.

Senator Lynch suggested that the restriction of the institutions permitted to purchase Housing Finance Agency stock might be worth considering. There are certain technical obstacles in the way of such a move. Furthermore, the view is that this measure would probably not greatly increase the amount of funds available to the agency. However, should there be any indication that for any reason this situation might be changing, we would certainly look at the question again.

Senator Bulbulia mentioned — and it was also referred to by some other Senators — the problem of default on loan repayments. This has, of course, been an aspect of the experience of all lending agencies. It is to be expected that the Housing Finance Agency will experience this problem to some degree. The provision which the agency has had to make for bad debts to date has been fairly modest. The position regarding the provisions to be made this year will not clear until the agency's accounts are finalised in the next couple of months.

Senator O'Toole also mentioned the position in relation to Mayo County Council. Since the inception of the agency a total of over £2 million has been allocated to Mayo County Council, just under half of which was allocated this year, and over 100 loans have been taken up by borrowers in that county. In total, the agency has to date provided about 11,200 loans.

There are some other points made by other Senators. As I said at the outset, I want to apologise for the absence of the Minister for the Environment who was not here to reply but did take some notes, and I am sure his officials have taken the details of the points that were made which were very relevant to this debate. I would like again to thank all the Senators who contributed to it. I listened to some very constructive debates to this very important Bill.

In conclusion, I want to thank the Senators on behalf of the Minister for the Environment.

Question put and agreed to.

Agreed to take remaining Stages today.