asked the Minister for Finance if he intends to reduce the rate of interest charged on local authority house loans, in line with recent changes in interest rates.
Ceisteanna—Questions. Oral Answers. - Local Authority House Loans.
20.
The Exchequer lending rate, on which the rate for local authority house loans is based, is a long-term fixed interest rate. Unlike building society and bank lending rates, it is not subject to variation during the life of the loan. The cost to the Government of borrowing long-term funds is over 14 per cent. Therefore, the present rate of interest charged on local authority house loans already involves a signficant subsidy which has to be met from taxation.
It is not my intention to reduce the rate at the present time.
Will the Minister not agree that a 12½ per cent interest rate on an SDA loan is exorbitant in the case of an individual whose income must be below £45 per week? Will he not agree that it is essential for the benefit of the building industry that the rate be reduced?
The Deputy may be assured of the Government's anxiety to see interest rates lowered. He must also be aware that the Government's policy in the past, as at present, has provided very generous subsidies on interest rates. For instance, within the last couple of years long-term borrowings were made by the State at a rate of interest of 17 per cent. That was the world market rate but notwithstanding it the Exchequer provided immense subsidies so that loans were still being issued at a figure as low as 11½ per cent. Any subsidies given to reduce the rate of interest chargeable on SDA loans will have to be met by the taxpayer because this is the only source from which the money can be obtained. I am sure the Deputy is of the view, as all sensible people are, that it would be inappropriate to impose any additional taxation, no matter how meritorious might be the case for lowering interest rates in respect of housing loans.
Will the Minister not agree that in circumstances where the SDA loan is only about half of the present price of a house and where the applicant must get another loan elsewhere at a high interest rate, if we are to ensure that housing development continues the interest rate should be reduced now, particularly in view of the large number of unemployed building workers?
There is no evidence that high interest rates are a factor in housing output or housing demand; in fact, it is quite the reverse. The largest number of houses were built and bought at a time when interest rates were high. I would not feel justified in imposing the additional taxation which would be necessary if the Deputy's idea were implemented.
Surely the Minister will agree that at a time when there are more than 20,000 building workers unemployed, when in the past year more than 8,000 building workers lost their employment, that this is a time when all possible incentives should be given to the building and the construction industry?
I am in favour of all possible encouragement being given. It is being given, and any fall-off in the building construction employment has not been in the housing sector.
Is the Minister aware that since 1st January there has been a drop of 16 per cent in the number of applications for local authority loans and that this is due entirely to the substantial increase in interest rates?
I am not so aware. The element of subsidy in respect of loans in 1975 was £4.9 million. That is a massive subsidy which is paid for by the general body of taxpayers.