Dáil Éireann díospóireacht -
Tuesday, 30 Mar 1971

Vol. 252 No. 10

Committee on Finance. - Adjournment Debate: SDA Loans Interest Charges.

Mr. Desmond

I wish to raise what seems to me, as it must to other Members of this House, to be the retrograde decision by the Government to raise from 9 per cent to 10 per cent the interest charges on SDA loans. On 22nd March the Minister issued a circular to local authorities stating that the new interest rate would be 9½ per cent loan charge and ½ per cent administration costs, making a total of 10 per cent.

I regard this as a unique decision on the part of the Government and I am sure I am not alone in that view. This will mean a still further escalation in housing costs particularly for those in the lower and middle income groups. For those in the lower income groups who might wish to avail of this type of financing for the purpose of providing themselves and their families with homes it represents what I regard as a wholly unnecessary extra imposition. An applicant for a maximum loan of £3,300 will have to meet a substantial increase in repayments in the region of an extra £2.15 per month. Repayments at the moment range from £6 to £7 or £8 per week. In the case of loans in the region of £3,000 it will mean an increase of 1s per £100 borrowed per month or 30s per month increase in repayments.

This added impost should seriously concern this House. No account is taken of the chronic escalation in rates. It is reprehensible of the Minister to take this decision at this particular juncture in view of the fact that building societies in the private sector have decided not to make a comparable increase in their interest rates. They have stated that publicly. It would appear there is a double standard in operation. Instead of the State adopting a policy of incentives to ensure cheap loans for houses it is doing the exact opposite.

The Government are behaving deplorably. The result of this short-sighted policy will be to put houses outside the reach of those most in need of them. On the basis of the old interest rates a borrower would pay back £8,000, or thereabouts; under the new rate he will pay back £9,000, a substantial increase from the point of view of interest and capital repayments. Admittedly, it is possible to avail of a rebate in income tax throughout the loan period, but this is not an argument of substance because the benefit to those concerned is nil. There was considerable scope for the Minister to exercise the collective imagination of his Department in suggesting amending legislation in respect of income tax relief and perhaps in redefining the loan period of 30 or 35 years. There are a number of things he could have done, as have been suggested to him down through the years by a number of organisations like the NIEC and the Commission on Income Taxation. Had their advice been heeded it is reasonable to say that capital would have been conserved for house loan purposes much more effectively than is now proposed by the Government. Rather than introducing a blanket penal rate of 10 per cent, irrespective of income, irrespective of family size and irrespective of the social needs of the applicant, there could have been a much more sophisticated sliding scale system related to people's needs. This could have been done by the Government but they seemed to be much more preoccupied elsewhere.

The Government must stand condemned for giving a unique and unexpected incentive to the dear house loan. The Minister will have noted that the various housing co-operative organisations have reacted strongly against the Minister's decision. The Minister will certainly note that the South County Dublin Housing Co-operative Society, a responsible voluntary organisation, and also the National Housing Co-operative Trust and other voluntary housing co-operatives in that area, where housing is almost completely beyond the reach of the lower or middle income group family, even with the £3,300 loan, have condemned in the strongest possible terms the raising of interest rates on loans to local authorities by the Government. These organisations have pointed out that the Government's decision has increased the cost of buying their own homes for many couples who were already bearing an enormous financial burden related to their income prior to the latest increase. Unless the Minister reverses his decision many couples will be prevented from providing homes for themselves for a considerable time to come.

In Dublin city there are 5,000 families—and one should multiply that by the average number of persons involved in each family, which means 15,000 persons—in need of housing. These people will have no option now but to avail of local authority housing with no alternative of local authority loans open to them. Likewise in the County Dublin area there are at least 1,500 families who again will have to rely solely on local authority housing. One might say the incentive to them to opt for tenant purchase is very small at this stage. It would be very difficult to suggest to a housing applicant, say, in the Ballybrack area of South County Dublin that he should pay £6 10s a week for a three-bedroomed local authority house, plus rates; admittedly there is remission there, but he may well have to pay up to £7 or £7 10s which is an extremely high amount to pay out of an income of £18 to £22 a week. Therefore I would urge the Minister to reconsider this matter so that further distress and anxiety will not be caused to the families concerned.

Mr. Cooney

I should like to support the case made by Deputy Desmond for the Minister to try to do something to alleviate what will be a very great hardship for very many people unable to bear such hardship. This increase will affect a section of the community that is not affluent, a section of the community from which the greatest pressures come in terms of looking for increased wages. This decision by the Minister to increase the interest rate will act as an inflationary agent and will make a difficult situation much worse. It will affect, as I say, the type of wage earner who up to now was looking to the local authority to house him. This person was, because of the recent increase in wages, housing himself with the loan under the Housing Acts, that is, the Small Dwellings (Acquisition) Acts and their successor. Because these people are being reduced in number they will be putting pressure on the local authorities to house them, and the local authorities, in turn, will be putting pressure on the Minister to provide what is a very scarce commodity at the moment, capital for housing. The decision is also contrary to the policy of the Department of Local Government who have been urging the formation of co-operatives so that people may provide their own houses, as a third arm in the housing drive, by means of these housing loans. Therefore the Department of Finance, by this interest rate increase, are thwarting the wishes of the Department of Local Government.

However, in the overall financial position in which we find ourselves at the moment the worst feature of this decision is that it will act as a further inflationary pressure. In the serious inflationary situation we are experiencing—and it is not becoming less—every action of the Government should be directed to seeing that it can be at least maintained. This action has a contrary effect because the people who want to buy their own houses but who have found themselves that few pounds or few shillings short in their budget will be driven to look for wage increases to make up that gap. It is also psychologically bad from an inflationary point of view in the sense that the double-figure interest rate of 10 per cent has now been made applicable as far as the man in the street is concerned and has set a most undesirable norm. Up to now we heard of the 10, 11 or 12 per cent only in the province of the finance companies and the moneylenders. Now the Government are establishing a norm of 10 per cent in the important matter of the provision of housing for the lower and middle income groups. This again will have a very unsettling effect because it will be taken by other sections as an indication that 10 per cent is now acceptable so that if they impose 10 per cent in their dealings, it will not matter because the Government have already done so.

Minister for Finance (Mr. Colley)

First, let me say that I regret very much the necessity for increasing this rate of interest. It is, however, notable that Deputy Desmond and Deputy Cooney made no reference to a very relevant factor—the cost at which the Government borrowed the money advanced to the Local Loans Fund. It seems to me to be a little strange to talk about this being inflationary when, clearly, what has happened is that the rate of interest at which the Government must borrow money is related directly to the inflationary situation in which we have found ourselves and to the inflated interest rates which are being paid today.

I would remind the House that the most recent long term borrowing effected by the Government was at a rate of almost 10 per cent. The rate of interest now chargeable on money advanced by the Exchequer to the Local Loans Fund is 9½ per cent and, as Deputy Desmond pointed out, one half per cent is added to that for administrative costs, giving the house purchaser a rate of 10 per cent to pay on the money he borrows. So far as the Exchequer is concerned, the rate is almost 10 per cent on the most recent loans and when a half per cent is added to that, the actual rate would be in the region of 10¼ or 10½ per cent so that the economic lending rate would be thereabouts and the rate of 9½ per cent that we are charging is about three-quarters per cent below what would be regarded as the economic rate. I am making that point because I want to make it clear that the Government are very conscious of and very concerned with the effects on house purchasers of these interest rates. To that extent we are subsidising interest rates on these loans to the extent of approximately three-quarters per cent.

Frankly, I had hoped that interest rates would have started on a downward curve and that it would have been possible to avoid this increase but that has not happened. If we were to fail to take action towards closing the gap—not closing it completely—it would, I think, be an indication of an approach by the Government to the general financing of the Exchequer which could well lead in course of time to the non-availability of any money for loans because we must show that we are making some reasonable attempt to manage our finances and to make provision for repaying the people from whom the State borrows every year.

Regarding the impact of this increase, I would point out that the increased gross cost to a borrower on a loan of £3,000 is about £27 per annum and since these interest payments qualify for income tax relief, the net cost in the majority of cases is less than £20 a year. In that connection, I would point out that figures available show that the average loan approved by all local authorities for new private houses purchased in each of the first three quarters of the year ending 31st March, 1971—I have not got the figure for the last quarter because it is not yet available—was, in the first quarter, £2,688, in the second quarter £2,789 and, in the third quarter, £2,747 so that the impact on the average increase is less than I have indicated. By that, I am not saying that the impact is of no importance to those who are borrowing but I am saying that we should keep in perspective what is the impact.

I should like to point out also in regard to housing generally that there is a number of items in the Government programme in regard to assisting people who wish to purchase their own houses. The first item is the increase in the private housing grants under the Housing Act, 1970. Expenditure on these grants for this year is estimated at £2½ million. Secondly, the provision of capital to local authorities for the payment of supplementary grants is estimated to cost £1½ million this year while the provision of capital for the Small Dwellings Act is estimated this year to cost £9½ million. In addition, there is rates relief for these grant-aided houses over a period of ten years.

I mention this to point out that the State is doing quite an amount to assist the purchasers of private houses and, even with this increased interest rate, is in practice subsidising the interest rate to some extent. Deputy Desmond referred to this as a unique decision but, of course, this is not so. Rates have been increasing steadily down through the years and it is a reflection of the inflated interest rates being paid for money which we borrow.

Deputy Desmond quoted a figure of 5,000 families as being in need of housing in Dublin city. Of course, the majority of those people would not be affected by this increase. When interest rates begin to decrease, we will ensure that the Small Dwellings Act interest rates will reflect this increase. It is true that the rate now payable is higher than that charged by the building societies, as was stated by Deputy Desmond, but the Deputy will be as well aware as I am that for a very long time this was not so. He will know also that the building societies' rates very, whereas the Small Dwellings Act rates do not vary. This may be no great help to those who are now paying the high rate but it has been in the past and will be in the future a considerable benefit to those who are borrowing at a lower rate of interest because the rates will go down eventually. People who borrowed under the Small Dwellings Act scheme ten or 15 years ago are now in a happy position compared with those who borrowed from building societies.

In conclusion, I again express regret that this increase was necessary but failure to increase the rate of interest could in the long run lead to the non-availability of capital. It is a decision which had to be made but a decision that will be reversed as soon as it is possible to do so.

The Dáil adjourned at 11 p.m. until 10.30 a.m. on Wednesday, 31st March, 1971.