Before I commence may I establish what is the position with regard to commenting on the new home improvement scheme announced last week? Am I free to make a comment about the new scheme, its operation and the omissions in the scheme? I seek the guidance of the Chair on the matter. I do not wish to find that, while I have not referred to it, it subsequently develops into a major part of the debate. If the Chair rules that I may not speak on it I will accept the ruling.
Housing Finance Agency (Amendment) Bill, 1985: Second Stage (Resumed).
Question again proposed: "That the Bill be now read a Second Time."
I do not think it would be in order to have an in-depth discussion on the matter but I would not object to a passing reference.
I have already made a passing reference. If I cannot refer to it in detail, there is no point in referring to it at all.
I will quote the explanatory memorandum:
The main purpose of the Bill is to increase to £500 million the amount the Housing Finance Agency plc may borrow for the making of loans for the construction or building of houses. The present borrowing limit of £200 million is specified in section 10 of the Housing Finance Agency Act, 1981. The Bill also contains some other technical amendments to the Housing Finance Agency Acts in relation to the borrowing operations of the Agency.
If the Deputy can relate it to that, that is in order.
I am concerned about the problem that has arisen for many small companies who are involved in carrying out home improvements. All of their work has stopped because of the announcement regarding a higher level of grant. In many cases work is not proceeding because of instructions to withdraw. This is evidence of the lack of advance planning by the Government in introducing new measures. It is a further indication that this was a panic reaction to the disaster that has struck the construction industry. It has been introduced with little preparation or proper administrative arrangements——
The Deputy should deal with the Bill.
The Ceann Comhairle told me I could make a passing reference to this matter.
I distinctly heard him say that the Deputy must relate it to the Bill.
Let the Chair send for the Ceann Comhairle, then.
The Deputy should continue with his contribution and deal with the Bill.
I had a discussion with the Ceann Comhairle and I made an arrangement with him. Then he leaves the Chair and the Leas-Cheann Comhairle tries to stop me.
I am not deaf. I heard the Ceann Comhairle.
Before I spoke on this matter I inquired if I would be in order to do so. I do not want to be in conflict with the Chair. It does not serve my purpose. I should like the Minister in his reply to give some indication as to how he will deal with the huge number of applications that will come to the Department for the new grants. The present inspection rate is running from six weeks to four months. That being so, it could result in a major stoppage in construction work for many companies while waiting for inspections to be carried out. It is a very serious matter.
Changing the date to 18 November will not make any great difference unless an army of new housing inspectors are appointed to carry out the work. If the Government had implemented the proposal in their document dealing with reform of local government which was issued on 30 May 1985, they would by now have transferred the operation of home improvement grants to the local authorities where there is sufficient engineering staff fully competent to carry out the work. In many cases these engineers have a low workload because of the cutback in finance to local authorities. I ask the Minister to refer to this matter in his reply and to give us some information as to how he will deal with what I consider will be a flood of applications. He has grossly underestimated the cost of the scheme.
I ask the Deputy to come back to the Bill.
It will cost closer to £30 million or £40 million rather than the £12 million mentioned. The Minister has not given us any idea where the money will come from and we must accept there is a major change in Government policy here.
Again, I ask the Deputy to come back to the Bill.
I will finish on this point.
The Deputy is making a comprehensive statement.
My final point on this is that on 14 December 1983 when by way of parliamentary question I asked the Minister if he would introduce a scheme of repair and maintenance grants in respect of the older housing stock——
The Deputy is going way beyond what is contained in the Bill.
——he said that because of constraints on public expenditure that was not possible but two years later it is possible. This is an indication of the hotch-potch method by which the Government apply their policies.
Will the Deputy please confine himself to the Bill?
The Bill is welcome on this side of the House in so far as it goes, but we have highlighted the alarming trend that is emerging in the whole housing area, where in many local authority areas difficulty is being experienced in finding applicants to fill the new houses that have been constructed. In many instances in Dublin the local authorities are in a position to allocate the houses to single person families.
This is a very unhappy ending to the Deputy's contribution because it has no relevance to the Bill. As has been indicated by both the Ceann Comhairle and myself, this is a very limited Bill. It seeks to extend finance for the Housing Finance Agency. It is only an amending Bill, but the Deputy has roamed over the whole global area of housing.
I do not understand how one might deal with a housing finance Bill without referring to the housing market and the trends in that area.
The Deputy has been talking about such matters as vacant local authority houses.
One affects the other.
I am asking the Deputy again to speak to the Bill.
If you wish to exercise the power of the Chair to prevent me from making comments, please say so but there are special categories of people living in local authority houses——
This is about the 15th time that I have asked the Deputy to return to the Bill. I would have expected more from Deputy Molloy because of his being an ex-Minister and a Member who knows the procedure. This is a very limited Bill in terms of discussion. It seeks to extend the Housing Finance Agency finance up to £500 million but the Deputy has broadened the issue into such areas as house improvement grants, vacant local authority houses, and so on. I appreciate your concern, but I would appreciate also your co-operation in finalising your contribution to the Bill.
The Chair may not be aware that——
I am very well aware.
Of what?
Of what the Deputy is saying.
I have not said it yet. The Chair may not be aware that local authority tenants form a special category when applying for loans from the Housing Finance Agency. They qualify for a higher loan than is the case of any other applicant. Therefore, what is happening in the local authority housing area is relevant to how the Housing Finance Agency will operate. One cannot differentiate between the two and say that, while one is relevant to the discussion here, the other is not relevant. From your remark, I do not accept that you understand how the Housing Finance Agency works.
I understand very well.
May I now explain the importance to local authority housing and to local authority tenants of the operation of this agency. I am sure you will agree that I am very relevant and that anything happening in that area is of importance to the whole area of the demand for housing. That demand will determine how many people apply eventually for loans because, if demand dries up, the agency will have no option but to pack up.
I shall conclude by saying that a whole new picture is emerging in the area of the housing market. Emigration is one of the new factors distorting the statistics. The result of emigration and of the high levels of unemployment as well as the low level of disposable incomes is that people are not moving as they were into new housing. Instead, they are selling out and leaving the country so that the money involved is not going back into housing. The local authority house building programme in some areas is in need of a complete review because what was considered to be the need is not being reflected in the demand for homes. Some local authorities have difficulty in finding tenants for some of their new houses.
The Deputy must accept that this has no relevance to the Bill.
It is relevant.
The Deputy might say that many issues are relevant but his remarks must be relevant to the Bill.
There is a need for major change in the overall policy being pursued by the Government if we are to bring growth back into the economy because otherwise we will continue on the disastrous decline that is affecting every area as well as housing.
Deputy Molloy painted a gloomy picture——
Of the Bill, I presume.
I presume he was referring to the Bill, but he painted a very gloomy picture of the Government's attitude to the construction industry, to the Housing Finance Agency, to the matter of SDA loans and to many other areas. The Deputy referred to a question he tabled in 1983 relating to home improvement grants.
I hope the Deputy does not intend to repeat that.
That is not my intention. This is merely a passing reference to previous passing references. Obviously, the Deputy did not extend his memory far enough back to 1980 or thereabouts when the then Fianna Fáil Government in a fashion that could not be regarded as hotch-potch, but which could be regarded as extremely clinical, cut off grants overnight. There was no apology from any quarter on that occasion. I regret that the Deputy did not see fit to mention that matter and I refer to it now merely to put the record straight in so far as his party are concerned in that area.
The advent of the Housing Finance Agency has been probably the single most important factor relating to housing finance in Ireland in the past 40 to 50 years. The establishment of the agency was decried by many people on the opposite side both here and at local authority level. These people said this was an area that we should not become involved in that the agency would not work, would not get money and could not last. They set out the reasons for what they foresaw as the failure of the agency. From my dealings at local authority level with those who have applied for HFA loans I am aware that the agency have been of tremendous benefit to those who needed them most. Many of these people had been up to then on the local authority housing waiting list. We have now arrived at the situation where virtually every couple, provided either one has a job, are in the position of being able to purchase their own homes. That has come about directly as a result of the Housing Finance Agency.
It has been obvious since the inception of the agency that they have never had sufficient moneys in any year to meet the demands on them. That is a healthy factor in many ways. It is an indication of a very keen interest in these loans. The Bill proposes to increase the borrowing power of the agency and this is to be welcomed as a most constructive step.
I should like to make a few short comments on the way the agency operate and perhaps a couple of suggestions as to the direction in which we should move next. Regarding the financial requirement for 1986, bearing in mind that in the current year approximately £86 million will have been allocated through the agency, I feel that next year, provision should be made for a figure somewhere in the region of £125 million to £130 million. That may seem an exaggerated requirement but, as we know from experience, it is not good policy to set a target at the beginning of the year which will be readily exceeded and more money will be needed before the end of the year.
I ask the Minister to ensure that a realistic allocation is made through the agency to the various local authorities at the beginning of the year, because that will eliminate any indecision on the part of people who want to borrow through the agency, or to build their own houses, and it might eliminate any lack of confidence in the building industry in those who propose to borrow from the agency.
It is important to ensure that borrowers who hope to obtain loans from the agency have sufficient confidence in the scheme to be able to assure the builder or the vendor that money will be available quickly and in sufficient quantities to meet their requirements. I ask the Minister to ensure this year, if possible, that the money is put up front at an early stage and that we do not have that kind of hiccup.
In my view, when deciding applications for specific categories, the county manager should have a little more discretion for allocating Housing Finance Agency loans. I am referring particularly to the ordinary HFA loan maximum of £22,500. In many cases that sum is sufficient, but this is not always the case. I am speaking of a husband, a wife and a large family who would quality for a special category loan if they were on the local authority housing list and living in unfit accommodation for 12 months. If they are living in a rented house which they hope to buy, or if they have to leave that house, they could find themselves living in unfit or overcrowded conditions. It could happen that the landlord wanted his house back or he might want to sell it in the ordinary way. These people are not being considered as special category applicants and can only receive a maximum loan of £22,500.
The obvious way around that — and this is the advice being given — is for the person concerned to obtain a supplementary loan. That is about the worst possible solution to the problem for that family. We are forcing them into borrowing from another agency and the repayments on the second loan will be competing with the repayments to the Housing Finance Agency. It could happen that the agency will be the institution to suffer when the crunch comes because, if they borrow from a bank or another agency, the chances are that the bank will bring pressure to bear more quickly and the borrower will have to repay the loan weekly. The repayments to the bank will be up to date but the Housing Finance Agency will suffer. The whole question of whether they are able to meet their loan repayments could be brought into question because of borrowing from too many institutions.
I ask the Minister to consider increasing the maximum for the ordinary category loan from £22,500 to £25,500 or, failing that, allowing county managers discretion to accede to the full £27,000 special category loans where hardship is likely to be caused, where there are large families or where the persons concerned, as a result of circumstances outside their control, could find themselves on the local authority housing list and, consequently, having to be housed by the State. Even though these families have not been on the housing list for 12 months, they should be considered for special category loans.
I have dealt with a number of cases which fell into that category and, it is important that the Minister should give the local authorities, who act as agents for the Housing Finance Agency, a little more discretion in that area. The Minister would be safe in doing that because, as we all know from experience, county managers are responsible people and can be relied on to ensure that the agency's money is not wasted. Those of us who are members of local authorities usually try to get the manager to spend a little more than he is prepared to and thereby hangs another tale.
Reference has been made to the competition between the Housing Finance Agency loan system and the SDA loan scheme and the fact that the number of SDA loans now being processed is decreasing considerably. I do not see anything wrong with that. The market requirements in this case are being met by the Housing Finance Agency and the SDA loan system and, most important, the State is winning because the Housing Finance Agency scheme is working so well.
In 1980 we in Kildare had approximately 2,500 families on the waiting list. That has been reduced to under 1,000 primarily as a result of the activities of the HFA scheme. That trend must be reflected in a number of other counties as well. Wherever we can ensure that an individual whose wife or husband has a job and who are anxious to obtain a home for themselves and their families, our attitude should be to do everything possible to assist them. When people are prepared to help themselves, and so create employment, we should do our utmost to ensure that State agencies assist them in a positive way.
I mentioned the fact that a number of people who obtain HFA loans can be on a housing list and that a number of couples thinking of getting married have also become interested in that scheme, but one of the things that can hamper them is that they must have some savings. I recognise that it is important to encourage people to save and to acquire a nest egg, but very often they may lose a chance to buy a house which comes on the market and in which they are particularly interested, because they did not have time to save. One thing that happens is that the £2,000 new house grant is taken into the calculations when determining the 90 per cent loan which is available in all cases.
If the Minister did not find some of my other suggestions possible, he might consider this. Perhaps the £2,000 new house grant could be calculated as part of the deposit rather than as part of the 90 per cent loan. In some quarters it is said that it is not advisable to encourage people to obtain a loan without having first gone through the trauma of saving. If it provides a couple with a house a little bit sooner it could ensure that we do not have young couples living in overcrowded and unfit housing conditions for long periods while they try to scrape up a deposit.
Deputy Molloy referred to the peculiar trends in the housing market. One peculiar trend is that there are a quite a number of secondhand houses for sale. It is not that the people are emigrating or walking out, locking the door and disappearing, as suggested by Deputy Molloy, but it is a result of a sharp increase in inflation in the price of houses and an increase in the number of houses built for a couple of years, when the party opposite were in power. Such a programme could not be maintained and we now have secondhand houses on the market which were built expensively in a time of inflation and when people were granted loans on the basis of expected increased incomes based on high inflation. The depressed secondhand market is a result of that over-supply and new houses now are obviously better value for anybody buying a house. In relation to secondhand houses it is important that my suggestion in relation to the increase from the £22,500 would be considered for those other than the special category cases. That could have an impact on the secondhand market and assist the people who would ordinarily find themselves waiting for three or four years on the housing list.
I welcome the Bill. I am glad the Minister is making more finance available to the Housing Finance Agency so that more money will be available for housing loans. I hope it will alleviate the difficulties of people who hold HFA sanctions so that they will be able to come off bridging loans much more rapidly than heretofore. Over the past year and a half people have been on bridging for a long time apparently waiting for the funds to come through to get their mortgages stamped and sealed.
I am worried about the operations of the HFA. They seem to operate differently from the normal traditional style of the other lending institutions in the repayments structure they operate. Where the other lending institutions have a standard repayment so that most of the pressures are on the borrowers in the initial two or three years, the HFA have the repayments index linked on a percentage basis which means that the pressure will come later on. I am afraid that young married couples who borrowed from the HFA and set up home will find themselves in a couple of years with a young family and not in a position to meet their commitments. It is all very well at the start when the repayments are low but as time goes on and the people get more normal family expenses they will be in a difficult situation. Has any study been done of the impact of this type of structured repayments for the future? I hope people are able to meet their commitments but is the Minister satisfied that this type of arrangement is appropriate and can be sustained in the future by borrowers?
As a result of the increase in VAT in relation to the building industry, as announced in the last budget, other financial institutions also serving the housing finance market have changed——
I hope that this is a passing reference.
It is, and it is very important.
The Deputy knows that the Bill is about, I presume.
Yes. Is the Minister aware of this situation and what does he propose to do in a situation where some financial institutions, since the advent of the new VAT rate are now——
That has nothing to do with this Bill.
It has.
It has nothing whatever to do with it.
This will have an effect on the house market.
It has nothing to do with the Bill.
When I make my point——
I am not trying to be awkward but it is a very limited debate on an amendment to the Housing Finance Agency Act, dealing with additional finance for the HFA. It has nothing whatever to do with the other financial structures or agencies in the same field. I have been trying to keep Deputies on to that and I would appreciate it if the Deputy would confine himself to the debate which has been going on here since before lunch time.
The Minister said that the Housing Finance Agency since their establishment in 1981 have been a major force in the Irish housing scene. I would point out to the Minister that other forces operating in the same housing scene are now having a rethink and a restructured type of decision on people who make applications for funds to buy or build houses as a result of the change in the VAT rate where we now have the increased amount of VAT being deducted from a loan. The Government are being blamed by these institutions for creating inflation in the cost of houses as a result of this VAT. This means that a person who makes an application expecting to get 90 per cent——
Is it related to the Housing Finance Agency Bill?
——absolutely — of their loan now find themselves ending up just 20 per cent less than before. Before this applicants for a loan on a £30,000 house would qualify for up to £27,000. As a result of this restructured situation where one-eleventh of the total price is being deducted from the loan against the 5 per cent VAT, people are finding themselves qualifying only for £20,000 against a £30,000 house. People have not got the funds to go ahead and this will have a detrimental effect on the housing market and put extreme pressure on the funds of the HFA if allowed to go uncontrolled by the Minister. I would ask the Minister to take cognisance of the situation and let us know what he proposes to do.
I worry that the agency have to borrow funds from life offices and pension funds and perhaps that is why repayments are structured in the way they are. We all know that people invest in these institutions in order to get a good return and these institutions boast about the high return they can give and about the way they can protect money against inflation. We can see a situation whereby the SDA loans which have been so vitally important could be reduced. Our spokesman, Deputy Molloy, illustrated clearly today the reduction in the number of loans and the reduction in the number of houses built over the last number of years. I appeal to the Minister, in tandem with this Bill, to review the SDA loan and increase the income limit to £10,000 and to increase the loan to £20,000. By taking the two in tandem we can protect the solvency and the operation of the HFA and look after those on lower income scales. Because of the way inflation is and the increase in VAT on building, it is now time to increase these figures for the SDA loans. I welcome the Bill and hope that the Minister will have some answers to the queries I put before him.
The Small Businesses Committee for some time has been considering ways of improving construction, demand and performance against a background of deep recession. Construction output generally grew rapidly in the seventies to reach 18.8 per cent of GDP in 1979. Since that time the sector has been in progressive decline and has fallen by a quarter in real terms and now it stands at 11.5 per cent of GDP. Although the percentage of GDP accounted for by construction is now in line with that of other European countries, the decline in demand continues. The Department of the Environment forecast a 4 per cent decline this year, even lower than last year.
We are all aware of the influence of the State on construction and its huge impact. In 1984, 70 per cent of finance for investment in construction was chanelled through State sources including direct expenditure of Government Departments, local authorities, State agencies, health boards etc. and grants.
Total mortgages for new houses advanced during the first quarter of 1985 were 2,850 odd. This was down by 5 per cent on the same period in the previous year. Building societies reported an 8 per cent decline and local authorities a 7 per cent decline, but the HFA a 2 per cent increase. I am getting there, a Leas-Cheann Comhairle.
You just got to it in time.
According to the construction industry there was a considerable rush by new house purchasers to complete house transactions before the VAT increase on 1 May and this resulted in an upsurge in loan advances during April which distorted the figures somewhat for that quarter, as will be seen when they are compared with the figures for the next quarter.
The Bill before us today is of a technical nature dealing with the HFA. The agency were registered in February 1982 following the passing of the Housing Finance Agency Bill by the Oireachtas in late 1981. They opened for business on 1 March 1982 and paid out their first loan on 31 August 1982. The objectives of the agency at the time were outlined primarily as to attract long term funds for institutional investors, life assurance offices and pension funds by enabling them to invest in index linked bonds issued by the agency. In this way additional financial resources were to be diverted into housing and consequently, the building industry would be assisted. The more funds attracted, the more loans could be given.
The second objective was that these funds were to be used to provide mortgages for house purchase at a rate of interest which would also be index linked; in other words, they were to provide mortages for a category of people who would not be eligible for conventional mortages. Annual repayments were to be related to the borrower's income and in this way the scheme would give access to home ownership to many who could not meet the high repayment burden in the early years of a conventional annuity mortgage.
A feature of the scheme was that it would protect workers against a fall in income due to sickness or unemployment. In effect, the scheme was designed to open up house purchase to employed persons who previously depended mainly on the local authorities for housing. The Act provides that the agency in performing their fucntion should ensure that, taking one year after another, all of their costs were met from their operations.
To date in the three years since the agency commenced operations to the end of October 1985, about 11,000 households have purchased their homes with HFA loans involving loan payments of £217 million. This money and the whole operation of the agency are Government guaranteed and the whole exercise before us today is to raise the limit of guarantee from £200 million to £500 million. The agency have already exceeded somewhat the £200 million. In addition an estimated 2,000 agency loans have been approved, but not yet paid, amounting to £40 million while another 2,000 applications are being processed. This totals over 15,000 loans which have been handled by the agency, coming to £300 million. We are not before our time in what the exercise is about.
In 1985 the public capital programme allowed for expenditure of £86 million by the HFA. This was increased somewhat in recent times from £80 million originally. To 1 November this year over 3,500 loans were approved in 1985 alone. These figures give some indication of the popular demand for the service being given by the HFA.
Since the agency commenced operations, cash receipts from the sale of index linked stocks totalled £170 million. The shortfall is obvious. However, the balance has been funded by the raising of short term borrowing. Funding between stock issues has at all times been achieved by this method which is essential for a weekly flow of funds. Many of us involved in local authorities and in helping constitutents to find their way through the mass of bureaucracy involved in most applications — and let me say that the HFA are no worse than any other in regard to red tape of this kind — found in 1984, in particular, that there was considerable delay on a month by month basis in payment of the loans once the mortgages had been sanctioned by the local authorities. I understand that funds were not coming through quickly enough to meet the demand on a month by month basis.
However, in 1985 the situation appears to be more fluid, and my experience is that there has not been the same stop-go in meeting payments and, as a result, the problem with bridging has been reduced. We are inclined to criticise the HFA, the building societies, or financial institutions and blame them for bridging situations, but investigation often shows that the mortgagee is to blame, that the title is wrong or some legal difficulty is holding up the final sanction. This year I have found far fewer problems with bridging with the HFA, and any of the delays I have investigated cannot be laid at the HFA's door.
A borrower with the HEA may receive a loan equal to three times his or her income and make a repayment of 20 per cent of that income which effectively means a repayment to the agency of about 6? per cent of the total loan in the first year. The net effect of this to the agency is approximately 5 per cent so, if the agency's money is costing any more than that, they are on a losing wicket. Then we must consider the cost of the administration which up to 6 June 1985 was about £200,000. I understand that seven married people are employed by the HFA, and that is the sort of figure for administration that we are talking about.
The sale of index linked stock with the low coupon is an ideal way of financing such a mortgage scheme. The agency are, therefore, severely restricted in taking up funds which involve an initial repayment of over say 5 per cent, because that is the net gain to the agency in any one year on their first portion of any loan repayment. If the agency were to obtain long term loans at 12 per cent, the cost of Government gilts for example, they could absorb only an amount equal to 15 per cent of that taken up from the sale of the index linked stock. The internal resources of the agency would then be fully committed to making these repayments and they would not, for example, be able to raise short term borrowing which is essential to the regular weekly flow of funds to mortgagees.
During the past three years there has been only one year when the average mortgage rate of the HFA was above that of the more conventional type building societies. That was in 1984 when the HFA variable was 13.95 per cent and that of the building societies was 12.06 per cent. This year the HFA variable is 9.95 per cent with the building societies at 12.07 per cent.
In a sample analysis of the loans approved in the period 1 January to 31 July of this year, HFA report that 54 per cent of the loans issued were for new houses and 46 per cent for previously occupied houses. This differs somewhat from the normal type of analysis of building societies and, perhaps, it reflects a particular demand that the HFA is meeting.
The HFA are there for those who cannot afford conventional mortgages. Most of the people receiving mortgages from that agency come off local authority housing lists or are likely to be local authority tenants or tenant purchasers. In a breakdown of all the loans and mortgages with the HFA one can see that 44 per cent were tenant or tenant purchasers of local authority houses, 21 per cent were tenants of private dwellings and the remainder were living with their parents. The HFA have been a particular attraction to single people who sometimes find it more difficult to get conventional mortgages, particularly from local authorities. Although 68 per cent of those who received HFA mortgages, over the last three years were married, another 10 per cent were single with no indication of likelihood to marry and another 20 per cent were about to marry.
The Deputy has been mentioning the Housing Finance Agency Bill and I thought she was about to refer to the Bill before us. While I appreciate the historical facts the Deputy is announcing, I must point out to her that the debate before us is a very limited one about additional funding for the Housing Finance Agency.
I accept that. I am trying to give a brief review of why we are in the lucky position of needing additional funding. After all, if I may be so impertinent, it is a Second Stage speech.
It is the Second Stage of a very limited debate.
I will stick strictly to the HFA and I will not wander from it. My initial remarks were by way of a preamble but I have stayed strictly with the HFA since.
The Deputy is doing a little meandering.
I have not deflected from the HFA. Any statistics I am giving relate purely to the HFA and are by way of illustration why we are discussing this technical and limited Bill which is before us, thankfully, because the HFA are a success story. When the HFA were established, they were given a mandate to raise long term funds from life assurance offices and pension funds by selling index-linked stock. Over the past three years, despite falling inflation and very high rates of interest, the agency, amazingly, succeeded in raising £170 million from those sources. In accordance with that mandate, those funds have been used to finance a mortgage scheme where the repayments are income related. As 54 per cent of those loans have been used directly to finance the purchase of new houses, the construction industry has benefited tremendously also.
I should like to develop one aspect of this issue. The HFA have been given a mandate to raise money purely from life assurance offices and pension funds by selling to them their index-linked stock, but perhaps there is a case for de-restriction in that regard. Perhaps banks, building societies and others might be attracted. There is no question of an immediate tremendous interest in the short term, but de-restriction might leave the option open particularly if we are to have increased inflation. The Minister should look at the possibility of de-restriction in regard to the prospectus of the HFA.
Another aspect that has increased demand for the services and the mortgages of the agency was the announcement in the national and social economic plan issued in September 1984 of the £5,000 grant for young people or people who were more than three years tenants in local authority houses. In a way that increased the demand for Housing Finance Agency loans more than was expected. In fact, the agency had a demand on them which was far above what was initially outlined for them when they were established. The scheme has been tremendously successful and a large proportion of the people leaving or relinquishing local authority houses have turned to the agency because they can lend up to 90 per cent of the purchase price of a house. As a result of the very prudent policy of the Government and the successful policies of the HFA the construction industry has benefited and many couples who otherwise might not be in a position to own their own home are now in a position to buy one.
In Wexford, as with all other local authorities, the HFA have had a tremendous effect. This year alone more than £950,000 has been spoken for, either approved or paid, in HFA loans and mortgages. I understand that that is the experience of all local authorities. The fact that the Bill is before the House is a tribute to the success of the HFA. The theory behind the type of income-related mortgage that the HFA operate is sound provided house prices and incomes keep in line with inflation. My only fear is that there would be any fallout between the three aspects, house prices, incomes and inflation. If any one falls behind the other and there is a question of having to redeem a loan for any good reason, there may be a difficulty with the mobility of the mortgagee. So far anybody who has had to redeem a HFA mortgage has not lost out but, in theory that could happen if house prices, inflation and incomes do not keep in line. The success story of the agency has made the Bill necessary and I support it.
Like other speakers I welcome the Bill and the announcement by the Minister that an extra £6 million is to be made available to the agency. I welcome that move as a member of Dublin County Council. Many Deputies have referred to the success of the agency and there is no doubt that that is true, but we should all be sensible in this regard and state that the HFA loans are as successful as the SDA loans were some years ago. The reason the agency have been such a success is that up to £22,000 is available for house purchase. Tenants of local authority houses who surrender their houses can obtain up to £27,000, a considerable amount if one is anxious to purchase a new house. We must remember that loans from the agency are the only ones available to many people anxious to borrow between £18,000 and £20,000.
I hope a considerable portion of the £6 million will be channelled into Dublin areas. In my constituency, Tallaght and Clondalkin, extensive building programmes are being carried out and many people are seeking loans for house purchases. It is my view that Dublin County Council are the biggest user of the HFA scheme. I expect the Minister is aware of the number of Dublin people who are on bridging finance because very little money was available to Dublin County Council last August.
What I am saying is pretty correct and I am not trying to be an alarmist. The situation improved somewhat when additional funds were made available, I think in September, but the position is still pretty difficult. A number of young people whose applications for loans have been approved under the Housing Finance Agency scheme are finding it difficult to have their loans advanced. When applicants apply to the council for a loan under that scheme, I gather they are advised to seek bridging finance and many are on bridging finance for a considerable time. It is not a question of my being critical of the scheme, which I welcome very much. I have been very much involved in it, possibly more so than many other Deputies, being a member of Dublin County Council. I am sorry to have to tell of the number of couples and young people on bridging finance which situation arose particularly from the non-availability of funds in the period starting about August last.
I welcome the announcement that an additional £6 million is being made available and I hope that a considerable proportion of this will be channelled into use in the Dublin area. The scheme has been a tremendous success but we must not lose sight of the fact that for house purchasers who wish to borrow in the region of £20,000, the Housing Finance Agency loan is the only loan available. The Bill has my full support.
I welcome this Bill as one in a series of moves taken to improve the housing situation greatly. Since 1979, for most Dublin TDs in any event, housing has been the biggest single problem experienced at clinics. The housing list for local authority housing has greatly eased, mainly because of a substantial number of houses being made available by those local authorities but also because loans through the Housing Finance Agency have been made available for people to purchase their own homes and because of the incentive of the £5,000 grant to surrender local authority houses in order to purchase privately built houses.
The housing situation is at the best state ever in recent history. The problem in rehousing is not getting houses, but getting people rehoused in the localities that they choose, when there is no space for extension work. The Bill improves the availability of loans and of housing alternatives for many citizens. I would like to see the Housing Finance Agency becoming involved in funding the refurbishing of inner city blocks of flats. People would be quite happy to buy flats and live in them if these were of a good standard. Section 2 of this Bill amends section 10 of the Housing Finance Agency Act, 1981, to increase the limit on borrowings by the agency to £500 million. I think the figure was £200 million. That is a very substantial increase.
We spend annually somewhere in the region of £210 million on building local authority houses. The lion's share of these are built in Dublin and the standards used in building them are second to none. They are very costly to build. Many of the people living in such houses would be quite happy to live in privately built houses not to the same standard if they aspired to owning those houses and could finance that ownership. We put people into those expensive houses at fixed rents and in many cases that rent is as much as the people can manage to pay. However, in some cases there are a number of people working in the family and they could afford to fund the purchase of a house if they could get together a deposit.
£210 million could probably finance borrowing in the region of nearer £2,000 million than £500 million. I ask the Minister to look at the whole question of local authority housing. Would it not be better to give a Housing Finance Agency loan to those people on the local authority housing list, funded by using the money spent annually in building local authority houses, to let those people purchase the houses automatically at 100 per cent loans with repayment of approximately 20 per cent of their income, whatever it happens to be, as the Housing Finance Agency system works at present? That would save a vast amount of money on maintenance, sometimes of a rather trivial nature which people buying their own houses from day one would be quite prepared to look after themselves. That would give a boost in the employment of people in the construction industry. I ask the Minister to consider this.
A difficulty is experienced by many under the Housing Finance Agency which has been accentuated in recent times by the £5,000 loan. This is probably best illustrated by giving an example. A deserted wife has £85 a week income and lives in a local authority flat. Under the three times income rule she would probably be able to borrow £12,500 and because she is a tenant for more than three years she could get the grant of £5,000. If she were buying a new house, she could get £7,000 and a mortgage subsidy. The Housing Finance Agency rules, in their application, state that it must be earnable income, that a person on a deserted wife's pension, disability pension or something similar, is excluded. Even though with all the grants available they would be well able to fund the purchase of the house they are excluded and not given the alternative to live in a house of their choice. Many small houses in the inner city could well be funded by people in this category. I ask the Minister to arrange for the Housing Finance Agency to look at this provision which would make the loans being extended under the present legislation available to the widest possible range of people. This would be in the interests of the applicant, of the local authority and of the Government and, from the point of view of self-reliance, people wanting to look after their own affairs, it is in the best interests of the community.
I am not going to take the credit to this side of the House exclusively, but there has been an enormous improvement in the housing situation. People who could not have hoped to be housed for many years are now being housed much more quickly. This is due to a combination of the loans and grants which have been made available under various schemes. There are still people on the housing lists who would prefer to house themselves in areas of their own choice where there would be a proper housing mix. The Minister should consider using the money he spends annually to service further loans under the HFA.
I congratulate the Minister on introducing this Bill and on making available an additional £6 million. I hope he will take into consideration the points I have raised.
(Dublin North-West): I welcome this Bill which increases the amount which the HFA may borrow. Since their establishment in 1981 the HFA have helped many people but they must belong to a certain category of people purchasing their own houses. It is a step in the right direction and I am glad we are now encouraging local authority tenants to purchase their own houses. This will mean a slowing down in the movement of tenants. A tenant who becomes a purchaser will have more interest in his or her house.
The £5,000 grant has proved very attractive but unfortunately the person availing of this grant has to move from his house. I wonder why a grant is not available to encourage tenants to buy the houses in which they are already residing, many of them for a very long time. I call on the Minister to introduce some type of grant to enable tenants to purchase their own houses. They should be encouraged to stay in their own areas. Although the grant of £5,000 has proved very attractive, it has created problems in some cases because tenants who are not working are not considered and those who qualify must move out of the area. Many of these people were leaders in their local community groups and there is now a lack of community leadership. These areas will become ghettos inhabited by poor people who cannot afford to move.
Part of the area which I represent is Ballymun where there are 300 vacant flats. In reply to a question the city manager indicated to me that many people living in that area availed of the £5,000 grant and moved to areas such as Tallaght, Clondalkin or Blanchardstown. The corporation have all those flats on their hands, as well as houses which are not regarded as attractive. They find they cannot let many of those houses. I am aware that the maximum rent in some cases is very high.
The Deputy has wandered from the Bill.
(Dublin North-West): These high rents also encourage tenants to buy their own houses. In the Dublin area it is difficult to let local authority houses and Dublin Corporation have included single parents among those eligible. Only a short time ago they would not have been considered.
There is a major problem for tenants who are applying for loans in that it can sometimes take nine or 12 months to complete the purchase process. I am aware that the processing of applications takes a considerable time and there is also delay in getting the property inspected. There is delay in dealing with the legal profession because a solicitor must guarantee to obtain title for his client and there can be considerable delay in establishing title. I am particularly concerned about the delay in the issuing of cheques by local authorities. In the Dublin Corporation and Dublin County Council areas only about ten cheques are handed out each week. I should like to see an improvement in that position. Unfortunate people who cannot get their cheques are put under pressure by vendors and are forced to acquire bridging finance. I hope that the Housing Finance Agency can eliminate the delay because some people are paying as much as £400 per month to the banks and financial institutions for these bridging finance facilities. I would ask whether Government cutbacks on staff recruitment to local authorities have contributed in any way to the delays in the issuing of cheques.
An applicant for a loan gets three times his income or 90 per cent, whichever is the greater. The repayment is 20 per cent of his earnings but many people do not realise that they will never own their houses at that rate of repayment. They should be encouraged to pay more. I welcome the Bill and hope it will enable many more people to buy their own houses.
All of us welcomed the setting up of the Housing Finance Agency and we are pleased that they have been successful. I should like to offer one or two observations about what I believe might be the way forward for the HFA in the context of the financial and technical measure before us.
One of the HFA's best contributions has been to afford to people on housing lists an option to purchase and get off the housing list into permanent, owner-occupied dwellings. This has filled a very important vacuum in the housing spectrum. That general thrust should be welcomed. At one stage people felt they had to be forever confined to living in local authority dwellings without the hope of ever owning their own dwellings and enjoying the benefits, privileges and dignities that go with it. The HFA have to some extent bridged that gap.
Debate adjourned.