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.