Dáil Éireann Debate, Tuesday - 7 November 2023
633. Deputy Donnchadh Ó Laoghaire asked the Minister for Housing, Local Government and Heritage what guidance has been given to local authorities regarding variable rate mortgages provided by the local authorities and whether the Department agrees with local authorities passing on said rate increases to the mortgage holders. [47784/23]
Amharc ar fhreagra635. Deputy Donnchadh Ó Laoghaire asked the Minister for Housing, Local Government and Heritage whether his Department has considered providing funding to local authorities to absorb the increased cost of mortgage interest applying to mortgage policies they have provided. [47786/23]
Amharc ar fhreagraI propose to take Questions Nos. 633 and 635 together.
Local authorities' loan books are comprised of both fixed and variable rate loans. Historically most loans were variable rate, but under the current Local Authority Home Loan all new mortgages issued are fixed rate, as was the case for the vast majority of mortgages issued under the predecessor Rebuilding Ireland Home Loan. The current value of outstanding local authority mortgages are approximately evenly split between fixed and variable rates.
Legally, the rate of interest on a housing loan shall be such rate as may be fixed from time to time by the Minister, provided that the rate shall not be less than the rate at which money is lent to housing authorities by the Housing Finance Agency (HFA) for the purpose of making such housing loans. Local authorities do not have discretion to individually set interest rates.
Operationally, local authorities borrow from the HFA to finance their mortgage lending. Therefore, their cost of financing is largely determined by the rate of interest charged by the HFA. As the cost of finance to the HFA is determined by the cost of finance on international markets, recent rises in wholesale interest rates and increased interest rate volatility have resulted in higher HFA interest rates being charged to local authorities, for both new fixed rate lending and historic variable rate mortgages. Consequently, this has resulted in increases to rates for borrowers.
The latest increase in the variable rate by the HFA, which was 0.5%, took effect from 1st October 2023. Given the pressures facing variable mortgage holders and that the latest variable increase would have been the second such increase this year, I instructed local authorities not to pass on all of the interest rate increase to borrowers. This reduced the increase due to be paid by borrowers from 0.5% to 0.2%. This brings the all in cost for variable loans to 4%, which is relatively low compared to most variable rate mortgages.
