Seanad Éireann debate -
Thursday, 28 Jan 1988

Vol. 118 No. 6

Housing Finance Agency (Amendment) Bill, 1987: Second Stage.

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

Minister of State at the Department of the Environment (Mr. Connolly)

This Bill further amends the Housing Finance Agency Act, 1981, first by broadening the power of the Housing Finance Agency to advance money to housing authorities; secondly, by increasing the amount the agency may borrow to lend to housing authorities from £500 million to £1,000 million; and thirdly, by empowering the Minister for the Environment to contribute towards the costs of the agency. Before dealing with the amendments in more detail, I think it would be useful to speak briefly about the Housing Finance Agency and its changing role.

The role of the Housing Finance Agency has been evolving gradually since it was established in 1981. It started out with the task of raising funds by way of index-linked bonds and lending these funds to individual borrowers on modest incomes who would repay them on an income-related basis. The agency used the housing authorities as agents to process loan applications and to collect repayments. It soon became obvious that this was not the ideal arrangement and, in 1986, the housing authorities were given full responsibility for income-related loans, with the agency simply providing the necessary funds.

The income-related and convertible loan schemes — the latter introduced in 1986 — provide a source of loan finance to those on modest incomes and have enabled thousands of people to purchase their own homes who would not otherwise have been able to do so. Taken with the traditional annuity loan scheme which the housing authorities operate, they provide a comprehensive range of mortgage facilities for people on modest incomes who cannot obtain funds elsewhere.

The changes made in July 1986 meant that the agency no longer lent money to individual borrowers, although it will still continue to have responsibility for those to whom it lent money before that date. It was recognised that this change would leave the agency free to devote more time to the raising of funds and, accordingly, it was decided last year that its remit would be widened to include the funding of annuity loans as well as the income-related and convertible loans. As a result of this decision, the agency lent to housing authorities last year twice the amount provided by the Local Loans Fund and it will provide all the funds being raised for publicly funded house loans in 1988.

The net effect of the various changes which have taken place is that we now have a comprehensive package of loans available for people of modest means and a single agency providing the funding for these loans. This Bill will complete the statutory framework for this arrangement.

Section 2 of the Bill spells out the purposes for which the Housing Finance Agency may lend money to housing authorities. The change which the section effects is to empower the agency to advance moneys to enable a housing authority to make loans for the purpose of carrying out improvement works to houses and to pay essential repairs and disabled persons grants. These grants are included in the public capital programme under the provision for house purchase and improvement loans etc. and, at present, funds to provide for their payment may be advanced to housing authorities from the Local Loans Fund. It is entirely in keeping with the wider role of the agency that it should now become the source of the funds needed by housing authorities for these grants and for improvement loans. As far as housing authorities are concerned, the funds will be provided to them by the agency on the same terms as they would have obtained them from the Local Loans Fund.

The present borrowing limit of the Housing Finance Agency is £500 million and it is anticipated that this will be reached during 1988. The new limit of £1,000 million provided for in section 3 of the Bill should enable the agency to fulfil its role as the principal source of finance for publicly funded house purchase and improvement loans for the next four to five years. Of course, the agency's borrowing requirement in 1988 would have been greater but for the arrangements announced last October whereby the building societies and banks have agreed to increase their lending to persons who would normally be seeking local authority loans.

The participation of the commercial agencies in this sector of the mortgage market is very welcome and has enabled the public capital programme provision for house purchase loans to be reduced by £55 million with a consequent reduction in the Exchequer borrowing requirement of £45 million and in the Housing Finance Agency's borrowing requirement of £10 million. Happily, the early indications are that the new arrangements are now working well. There were some teething problems at the start but I am glad to say they have now been ironed out and it is working quite well. I am quite pleased with it. If anybody has complaints, I would be very grateful to hear them and to take them on board and have them investigated.

Section 4 of the Bill provides for the making by the Minister for the Environment of contributions towards the costs of the Housing Finance Agency. The need for these contributions arose because of the agency's inability to raise index-linked funds in the market in recent years. The changed conditions prevailing in the markets — low inflation, high real interest rates etc. — meant that index-linked stock had become unattractive to the financial institutions and the agency had, therefore, to rely disproportionately on costly short term borrowing to fund its operations. Naturally, this had adverse effects on its financial position since its operations were geared to index-linked borrowings.

Following a review of its operations in 1986, a special capital injection of £7 million was made available to the agency in order to place it on a firm financial footing. It was also decided to allow the agency to borrow long term funds on a conventional basis and, if appropriate, to avail of foreign currency loans. It was recognised, of course, that this change in the financing arrangements would have ongoing implications for the finances of the agency as it would not in the short term be able to match the cost of funds raised by it with the income derived from income-related loan payments. Accordingly, the difference between the cost of conventional borrowing and what would be the cost of raising the same money by issuing index-linked bonds at a real interest rate of 4 per cent is paid by the Exchequer to the agency by way of an interest swop arrangement.

The net effect of the interest swop arrangement is the same as if the State were to borrow money in the normal way and invest it in Housing Finance Agency index-linked bonds. Of course, such bonds would, as well as paying the 4 per cent interest, be increasing in value so that, on maturity, the real value would be maintained. A similar arrangement will apply to the interest swop arrangment with the result that the increase in the value will ultimately accrue to the State at the end of the loan priod. The contribution to the agency on foot of the interest swop arrangment in 1987 was £9 million. The provision for 1988 is £11 million but it is expected that, on the basis of current interest and exchange rate trends and the increasing capacity of the agency to fund loans from capital repayments, the size of the contribution will decrease gradually over the years. Section 4 of the Bill validates contributions already made under the interest swop arrangement and future contributions.

In conclusion, the amendments proposed in the Bill are designed to broaden the power of the agency to lend money to local authorities; to provide for an increase in the statutory borrowing limit of the agency and to validate and provide for future contributions to the agency. These amendments are necessary to ensure that the agency can continue its valuable contribution to the financing of local authority loans for those on modest incomes.

I commend the Bill to the House.

Mr. J. Doyle

As the Minister has stated in his opening speech, the purpose of the Bill before the House is to amend the Housing Finance Agency Act of 1981. The purpose of the Bill, as outlined, is twofold, first, to increase from £500 million to £1,000 million the amount the Housing Finance Agency may borrow to fund house purchase loans and, secondly, to empower the Minister for the Environment to contribute towards the cost of the agency. The Housing Finance agency was established in 1981. It is only right at this stage to look at the record of the agency. It was established to raise funds by way of index-linked bonds and to lend funds to borrowers on a modest income who could repay them on an income-related basis.

Shortly after my election to a local authority, I advocated a view which was unfashionable at the time. I saw that if people were able to rent their houses from local authorities in proportion to their incomes, it was possible to find a mechanism by which people on modest incomes could purchase their own homes and make the necessary repayments on an income-related basis.

The Housing Finance Agency achieved this very purpose. Indeed, it made a tremendous impact on Irish society. Many people, who were on the housing lists of local authorities, with little or no chance of being housed because they would never have sufficient points, were able, through the Housing Finance Agency, to purchase their own homes. In 1982 the agency advanced £50 million; in 1983, £55 million; in 1984 £71 million; in 1985 £91 million; and in 1986 £78 million. From these figures it will be seen that it has certainly fulfilled a very valuable role and achieved its aim in making available to people in a particular income bracket the necessary finance to purchase their own houses. Of course, the agency was not favourably received by all political parties. The Minister's own party was opposed to the principle of the Housing Finance Agency.

For some people, especially the occupants of local authority houses who were living in very overcrowded accommodation, there was a very serious problem in finding the necessary deposit to purchase a new house under the Housing Finance Agency scheme. This was solved by the previous Government when they allowed grants of £5,000 to tenants and tenant purchasers to purchase their own local authority dwellings or to build houses for their own occupation. Indeed, so successful was that scheme that the Chairman of the Housing Finance Agency in his annual report of 1986 referred to the extent of the agency's loan activities, stating that a factor in the increased demand for the loans in the period was the success of the £5,000 grant scheme for tenants and tenant purchasers. Unfortunately, the present Government abolished the £5,000 grant scheme and the £2,250 grant for new houses which was available to people in a similar category. At the same time they abolished the house improvement grants which were available to people of all incomes for the purpose of improving and refurbishing the housing stock of the country.

Unfortunately, the situation further deteriorated. We must take into account the Minister's circular, H10/87, to all local authorities in which they were told that the capital available to individual housing authorities for public funded house purchase loans in 1988 would be at a level not exceeding "60 per cent of the amount of allocation now standing notified for the current year". The circular goes on to say that this is the kernel of the arrangement announced by the Minister and that apparently the banks and building societies had been taken on to provide funding for a number of people who otherwise would qualify for SDA loans or Housing Finance Agency loans. Anyone who, in future, applies to a local authority, for example, Meath County Council, Galway County Council or Monaghan County Council, for an SDA loan will not even be allowed to fill out an application form. They will be told that they first must go to a building society or a bank. Only persons refused by both a building society and a bank may apply to a local authority for a loan. It is not even that simple. They must also have documentation for the local authorities stating that they were refused both by a bank and a building society.

The circular goes on to say that, provided the local authority are satisfied that the applicant has genuinely sought and has been refused a loan suitable to his need from a building society or a bank, the local authority may consider the applicant in the normal way. People on a certain income, which we all regard as a very modest income, will now, before they can get a loan from the State, be humiliated by being refused both by a bank and a building society. Unfortunately, these are the people who are making an honest effort in our society to provide for themselves and their families.

The Bill before the House is designed to give effect to this housing circular, as the Minister has outlined in his speech. The Government who promised the "better way" in so many other ways are now telling people who will be driven into the private building market that they will have to go through the building societies and banks. Only if they are refused both by the building societies and the banks will they even be considered by a local authority. This course of action will involve a saving of £55 million for the Exchequer in a full year. The cream of the area which local authorities cater for and to whom they have lent in the past are now being handed over to the financial institutions because, on paper at least, they seem to be a safer risk. If a person who has under £10,000 income fails to get a loan from a building society or a bank goes back to his local authority, he will be severely scrutinised by that local authority. I ask the Minister to pay special attention to the way the local authorities operate the new regulations in that area.

The introduction of the variable interest rate is most welcome. I fully accept that, at a time of increasing interest rates, the variation is of benefit. Going back over the past ten years many people who sought SDA loans were very satisfied because they knew exactly what rates of interest they would be paying for the rest of their lives. We should not get too fixed on the idea that the ultimate would be to depart from the fixed interest rate and go on to a variable interest rate. Many people in the past took out SDA loans on the fixed interest rates and were happy to know what they would be paying for the rest of their lives. It might be an advantage to give people a choice in this area. I am not sure whether the Minister envisaged that in the recommendations. If the choice could be given to people of a variable interest rate or a fixed interest rate it would be up to the people to decide what was best for themselves.

I welcome the increase in the reconstruction grant from £6,500 to £8,000. Due to the removal of grants and various other incentives, a number of people are now entitled to apply for this type of reconstruction loan which can do a lot to improve their houses.

Finally, I am worried about the number of houses which will be completed in 1988 by local authorities. The figure lies somewhere between 2,000 and 3,000 with a much lower figure for the following year because of the decline in housing starts. A reduction of £50 million from £87 million to £37 million means that there will be no money for new council houses next year. Can the Minister inform the House how many new local authority houses will be started next year? I have a terrible fear that with the incentives which were put in place by the previous Government now removed and no new housing starts commencing our housing lists will grow and, as a result, we will find ourselves back where we were five or six years ago with a long waiting list and with little or no hope for people on these lists. I fully accept that the purpose of the measure before the House is to make the necessary amendment to ensure that the Housing Finance Agency can continue its valuable contribution to the financing of local authorities. I welcome the amendment and I recommend the Bill, as the Minister did, to the House.

Mr. Fitzsimons

This is a very short but very important Bill. I, too, welcome it very warmly. It is appropriate that we should now be debating a Bill of this kind. On all sides it is agreed that the construction and building industry is in a very depressed state. From that point of view, I welcome the gesture in the budget with regard to the £6½ million provided for primary schools and also the urban renewal programme in the designated areas. This will have a beneficial effect. The Government inherited a very unsatisfactory and chaotic situation when they came into office. Senator Doyle referred to some of the schemes of the previous Government. While it is not my habit to rake over coals, it is important to say that some of these schemes have contributed to the sorry plight of the building industry at the present time.

I welcomed the grants which were provided by the previous Government. At the time the £5,000 grant that Senator Doyle spoke about was introduced for local authority tenant purchasers, I, along with virtually everybody else at the time, welcomed it but it has been proved that while it did enormous good it had social and other implications which were not foreseen. The scheme was not properly thought out. In addition to that, the problem with regard to grants for house improvement resulted in a situation where the Government provided grants but did not provide the finance. Unfortunately, on that account, this Government had to cease acceptance of applications for new house improvement grants and it will take a number of years to deal with the grants that are in the pipeline. This problem was caused by the previous Government.

The Housing Finance Agency has done enormous good. On a previous occasion in this House I went through the history of the Housing Finance Agency. It is not necessary to do so at the present time but in referring to the Housing Finance Agency we should not lose sight of the fact that the Small Dwellings Acquisition Act did enormous good as well. Personally, I always felt it was unfortunate that the Small Dwellings Acquisitions Act was not amended or extended to deal with the situation which the Housing Finance Agency was created to assist. One of the big problems in the early years of the Housing Finance Agency seems to me was with regard to capital depreciation where individuals who built houses might wish to sell them. They found themselves — very often I think — with a problem in so far as they were unable to dispose of their houses on account of this depreciation of capital. That has been taken care of and must be welcomed.

It is also important when dealing with this Bill to welcome the initiative of the Government in arranging that the banks and the building societies will provide finance in certain circumstances, and that where they do not provide the finance for construction of new houses and the reconstruction of old ones the local authorities will then finance these applicants. In relation to what Senator Doyle has said, the only problem which I see in this regard is, perhaps, the delay which might be caused in processing the various applications. It is inevitable that there will be teething problems but I would ask the Minister to make every effort to ensure that the delays will be as short as is possible. This is important.

I feel also that in the past, to some extent, loans and loan funds have been used and abused by people in that individuals made considerable wealth through the building of houses. They were people who were not in the construction industry and they did this as an additional source of income. This caused problems. In this area we are dealing with a considerable transfer of wealth.

It is unfortunate that the Government found themselves in a situation where some of the schemes had to be abandoned or withdrawn for the time being. The £5,000 mortgage subsidy was important but that has been withdrawn. Thankfully, we still have the £2,000 new house grant, which is of considerable help. I have stated before in this House that it would be more helpful if people were allowed to build by direct labour and qualify for the grant. I fully realise that the Government must get the VAT payments. There is provision under the regulations that more than one contractor can be involved with regard to this, provided that the amount on which VAT is paid is £15,000 or more. As stated on other occasions, we have situations in this, country where we have one or two tradesmen in a family who are quite capable of doing all the work to complete their own houses. It is a change in the wrong direction to prevent these people from building houses. To an extent, I suppose, we can say that they are not prevented if they can build without the help of the £2,000 grant, but I am sure that there are not very many people building new houses who can do so without this grant.

I am particularly pleased that the effect of this Bill will mean that the essential repairs grants and disabled persons' grants will be continued. They both have helped enormously on a national scale. The essential repairs grants have helped to keep elderly people out of hospitals and geriatric institutions. The amount spent per dwelling was not considerable and the value from the social point of view was enormous. In my own county, County Meath — and I am sure it is not much different to any other county — scores of elderly people have been kept in their own homes by the essential repairs grants but, unfortunately, at the present time there is a long list. When we are dealing with elderly people, in particular, it is unfortunate that they have to wait so long. Many of them will be dead before their turn is reached.

I know the health boards and the officers concerned draw up a priority list. They are as generous as possible, but their hands are tied with regard to the actual amounts. Perhaps the Minister might look at this and take into consideration the backlog in the different counties. He might try to make some provision whereby people who are in a worse situation would be dealt with in a reasonable period.

Debate adjourned.