Dáil Éireann díospóireacht -
Thursday, 12 Apr 2001

Vol. 534 No. 5

Written Answers - Housing Loans.

Noel Ahern

Ceist:

157 Mr. N. Ahern asked the Minister for the Environment and Local Government the situation with HFA house loans taken out in 1984 for £20,000 and which now have accumulated to practically three times the amount borrowed; if there is a scheme to offer the clients a new loan repayment system; if the interest rate on loans can be outlined; if interest rate reductions in recent years have been put into effect; if encouragement can be offered to clients to pay off loans and remortgage elsewhere; and the terms which can be offered in such cases. [11299/01]

Minister of State at the Department of the Environment and Local Government (Mr. Molloy):

I assume the Deputy is referring to the HFA income related loan scheme which was available in the early 1980s. This loan scheme gave access to home ownership to many people for whom the high repayments burden in the first few years of a conventional annuity mortgage was a deterrent. The income related nature of the payments means that unlike in the case of ordinary mortgages, account is taken of fluctuations in borrowers' incomes thus enabling the real burden of loan repayments to be spread over the duration of the loan. This method of repayment protects the borrower against the short-term effects of a loss of income due to unemployment or illness.

While some 15,600 loans were advanced in the 1982 to 1986 period only 3,500 were outstanding at 1 December 2000. The numbers of loans outstanding continue to decline as borrowers repay and redeem their loans. Similar to all local authority house purchase loans, borrowers are free to redeem such loans and refinance in the private sector at no additional cost.

In cases where borrowers are experiencing difficulty in making repayments on the income related basis due to fluctuations in their incomes they can opt to make their repayments on an annuity basis. This facility was introduced with effect from 1 July 1987 to ensure that the loan is repaid over a specific time period. Borrowers whose capital balance increases in any given year are advised of this and given options to increase their repayments. The income related loan means that they have no contractual obligation to increase repayments.

The risk of not clearing the loan principal would only arise where the borrower's payments remained in the long-term below the interest charged, which would normally only occur in the event of long-term unemployment. With effect from 1 January 1996 the supplementary welfare allowance scheme was extended to income related loans. The SWA scheme is designed to assist any borrower who is in receipt of social welfare income. The objective is to prevent the balances outstanding on the loan accounts of those who qualify from increasing during the period when they qualify for assistance. This is achieved through a combination of the borrowers repayments, the SWA assistance and the Housing Finance Agency freezing the interest on any debt in excess of the loan advanced less any arrears.

The interest rate on income related loans issued since 1 July 1983 is calculated in June each year and is based on inflation in mid-May plus a variable margin which is currently 4.3%, excluding 0.67% for mortgage protection. In the year ending 30 June 2000, the interest rate was 9.5%, that is, variable margin of 4.3% plus inflation of 5.2%. The interest rate for the year ending June 2001 will be calculated when the mid-May inflation rate is known.