Thursday, 12 November 1987
Dáil Eireann Debate
The purpose of this Bill is twofold. Firstly, it increases from £500 million to £1,000 million the amount the Housing Finance Agency may borrow to fund house purchase loans. Secondly, it empowers the Minister for the Environment to contribute towards the costs of the agency. Before discussing in detail the reasons for these amendments, I would like to speak briefly about the contribution made by the Housing Finance Agency in the area of housing finance.
The Housing Finance Agency was established in 1981 to raise funds by way of index-linked bonds and to lend these funds to borrowers on modest incomes who would repay them on an income-related basis. Initially, the agency used the local authorities as agents to process loan applications including the collection of repayments, etc. Since 1 July 1986 this arrangement has been changed and now the agency block lends funds to the local authorities who, on their own responsibility, lend to the individual borrowers.
The income related loan scheme and the more recently introduced convertible loan scheme have made a significant contribution to the ability of people to acquire their own homes. These schemes provide a source of loan finance to those on modest incomes and, due to the income related and low deposit features, have enabled thousands of people to purchase their own homes who would not otherwise have been able to do so. The schemes, together with the traditional annuity loan scheme which local authorities operate, provide a comprehensive range of mortgage facilities for people on modest incomes.
The rationalisation which took place in July 1986 has left the agency free to devote more time to raising funds. This has allowed the remit of the agency in this area to be considerably widened to include the funding of annuity loans as well as income related and convertible loans. The agency will this year lend to local authorities about twice the amount being provided from the local loans fund.  As a result of my recent announcement — to which I shall return later — about the future funding of loans for persons on modest incomes, the agency will be effectively providing all the funds which local authorities will be borrowing for their various house purchase loan schemes next year. The present borrowing limit is £500 million and it is anticipated that this will be reached by the agency during 1988. The new limit of £1,000 million should enable the agency to fulfil their role as the principal source of finance for publicly funded house purchase loans for the next four to five years.
Of course, the agency's borrowing requirement in 1988 would have been greater but for the recently announced arrangements whereby the building societies and banks have agreed to increase their lending to persons who would normally be seeking local authority loans. Under these arrangements the institutions will increase their funding of house purchase loans for persons under the £10,000 income limit by up to £70 million in 1988. They will not apply prior deposit requirements to applicants in this category. To ensure that loans of up to 90 per cent of the house value are available, a limited guarantee will be given by the local authorities in respect of these loans. Under the guarantee, the lending agency will be able to recover from the local authority half of any losses suffered on repossession and sale of a house, subject to a maximum of half the amount by which the loan exceeds 75 per cent of the house value at the time the loan was approved. Any payments by a local authority under the guarantee arrangements will be recouped from the Exchequer.
While the commercial agencies will not apply prior deposit requirements to applicants in this category they will apply their normal criteria in making decisions on loan applications to them. In this context, I should emphasise that house purchasers will still be able to apply to their local authority for a loan where they have failed to obtain one from the commercial agencies. The participation of banks and  building societies in this area of the mortgage market is very welcome and will enable the public capital programme provision for house purchase loans to be reduced from £155 million to £100 million with a consequent saving in the Exchequer borrowing requirement of £45 million and a saving in the Housing Finance Agency's borrowing requirement of £10 million.
In conjunction with these arrangements it has been decided that a variable interest rate should apply to annuity and convertible loans with effect from 1 December. The interest rate will drop to 9.75 per cent plus the cost of mortgage protection. This represents a saving of 0.75 per cent to borrowers. Fixed rate loans are not advantageous to the borrower at a time of falling interest rates. It is the Government's intention that this variable rate will be kept at a rate that does not exceed the normal building society rate. The Government's policies, particularly the commitment to reduce borrowing and to cut public expenditure, have had and will continue to have a very beneficial effect on interest rates.
Before leaving the question of publicly funded loans, I would like to draw the attention of the House to the fact that I have increased the maximum secured house improvement loan which may be advanced by local authorities from £6,500 to £8,000. This increase will enable more people of modest means to carry out improvements to their homes and will apply to works commenced on or after 11 November 1987. This funding, too, is provided by the Housing Finance Agency.
I would now like to move on to section 3 of the Bill which deals with the making by the Minister for the Environment of contributions towards the costs of the agency. The need for these contributions arose because of the agency's inability to raise index-linked funds in the market in recent years. The changed conditions prevailing in the markets — low inflation, high real interest rates etc. — meant that index-linked stock had become unattractive to the financial institutions and  the agency had, therefore, to rely disproportionately on costly short term borrowing to fund its operations. Naturally, this had adverse effects on its financial position since its operations were geared to index-linked borrowings.
Following a review of its operations in 1986, a special capital injection of up to £7 million was made available to the agency in order to place it on a firm financial footing. It was also decided to allow the agency to borrow long term funds on a conventional basis and, if appropriate, to avail of foreign currency loans. It was recognised, of course, that this change in the financing arrangements would have ongoing implications for the finances of the agency as it would not in the short term be able to match the cost of funds raised by it with the income derived from income-related loan payments.
Accordingly the difference between the cost of conventional borrowing and what would be the cost of raising the same money by issuing index-linked bonds at a real interest rate of 4 per cent is paid by the Exchequer to the agency by way of an “interest swop” arrangement.
The net effect of the interest swop arrangement is the same as if the State were to borrow money in the normal way and invest it in HFA index-linked bonds. Of course, such bonds would, as well as paying the 4 per cent interest, be increasing in value so that, on maturity, the real value would be maintained. A similar arrangement will apply to the interest swop arrangement with the result that the increase in the value will ultimately accrue to the State at the end of the loan period. The provision for the payment of the contribution to the agency on foot of the interest swop arrangement in 1987 is £9 million. The provision in 1988 will be £11 million but it is expected that, on the basis of current interest and exchange rate trends and the increasing capacity of the agency to fund loans from their capital repayments, the size of the contribution will decrease gradually over the years. Section 3 of the Bill validates contributions already made under the  interest swop arrangement and future contributions.
In conclusion, the amendments proposed in the Bill are designed to provide for an increase in the statutory borrowing limit of the agency and to validate and provide for future contributions to the agency. Without these changes, the agency could not continue its valuable contribution to the financing of house purchase loans for those on modest incomes.
Mr. Boland: This Bill essentially seeks to give statutory effect to the package of announcements which I made in May of last year on the future operation and funding of the Housing Finance Agency. I announced then that the Government had made a number of decisions to enable the agency to continue to expand its house purchase funding activities. They were that the agency should be permitted to raise long term funds by conventional borrowing in addition to index-linked borrowing, that foreign borrowing might also be used and that an interest swop arrangement which has been referred to by the Minister would be introduced to match the cost of funds raised by conventional borrowing with a return from income-related payments to borrowers. It was our objective that the agency would, as a matter of urgency, move to put together a package to refinance their existing short term borrowing. The Government agreed to give a special grant of up to £7 million, in the event it was £6.9 million, to the agency to meet their accumulated losses on the short term borrowing and on bad debts.
In the period up to 1986, the local authorities took on a greater direct responsibility for the administration of the scheme. It was our intention that the SDA loans, the direct council loans, and the HFA schemes would be more closely aligned and that the HFA would begin to provide funds for the local authorities to replace the draw from the local loans fund for SDA purposes, with the ultimate  objective of taking over all of that funding. The conclusion was that the agency should become a specialist agency for the funding, through the local authorities of all loans for persons of modest means.
I am disappointed the Minister did not take the opportunity of outlining to the House to what extent that package has been put in place. It was hailed at the time by the financial markets and the financial press as being a very important and fundamental restructuring of the HFA, a recognition of the contribution which they had made in the provision of funds for people of modest means to engage in house purchase. Because of the relatively unattractive nature to the financial markets of the type of borrowing which the HFA could engage in, it was necessary to allow the agency to engage in conventional borrowing in a range of instruments, both domestic and foreign, so as to replace the short term borrowing which the agency had to engage in at that time. As a recognition of that, the interest swop arrangement with the Government was to be put in place and the agency were to progressively reduce their exposure to short term borrowing and to replace it by conventional borrowing. My recollection at the time was that that would involve the replacement of £150 million or £160 million in short term borrowing funds.
It is a pity that the Minister has not outlined to the House the extent to which the agency have been successful in replacing the short term borrowing with the longer term conventional borrowing and, most importantly, that he has not outlined whether the agency have been able to replace an amount of that short-term borrowing through more conventional instruments and in foreign currencies which was crucial to the decision of the Government at the time. It was realised that there was available — it still is available — a substantial amount of foreign funding at far more attractive interest rates to institutions such as the HFA which would allow them to restructure their loan exposure and, over a period of time, to be able to offer loans through the local authorities to people at even  more attractive rates than was then possible. The Minister made no reference to the extent to which the agency have managed to engage in that task which was entrusted to them by the Government at the time, and specifically the extent to which the agency have been allowed or empowered to borrow in foreign currencies.
In relation to the arrangement which the Minister of State has adverted to and which was announced by the Minister for the Environment on 27 October, I find it quite extraordinary that an announcement of a replacement of public capital allocation such as that could be made approximately a fortnight after the public capital programme estimate for 1988 had been published and without any reference to that arrangement being made in the public capital programme. It has to be suggested that it was unfair to the House and to others to publish the public capital programme showing a figure of £155 million and a fortnight later to produce an entirely different picture. The House deserves to be told whether the subsequent and fuller Books of Estimates for 1988, to be published early in the New Year, will contain the true position.
Following the Minister's announcement, he was quoted in The Irish Press 28 October 1987 as saying the Housing Finance Agency scheme is not working. That constrasts very sharply with the admission by the Minister of State of the success of the agency and of the many thousands of people who have succeeded in housing themselves through the operation of the agency in the short number of years of its existence.
It is interesting to look at some of the successes of the agency set up in 1982. Between 1982 and 1986, the agency had provided funds for 14,000 loans to enable people to house themselves and their families, at a total cost of £280 million. By the middle of 1986, at the time I announced the restructuring package, the agency had advanced moneys to allow in toto 16,000 families to borrow loans to house themselves at a total cost of £320  million. In that context, I fail to understand why the Minister for the Environment should have gratuitously and falsely suggested in a daily newspaper the day after his announcement that the agency was not working.
I detect a regrettable trend on the part of the Minister for the Environment, whom I regret is not here to hear this criticism, to take every opportunity to denigrate, criticise and belittle anything that was put in place by a Government of which he was not a supporter. His criticism of the agency in the daily newspapers, a criticism which could be regarded as very damaging to an agency which is obliged to go into the financial markets to seek funding to carry on their worth-while activities, was ill-founded and does not accord with the facts. Perhaps what the Minister has in mind is the extraordinary fall-off in demand for local authority and other loans by people of modest means. Perhaps he might have given more attention to the reasons for this fall-off in demand.
In the annual report of the Housing Finance Agency for 1986 the chairman, in referring to the extent of the agency's loan activity, stated that a factor in the increased demand for loans in this period was the success of the £5,000 grant scheme for tenants and tenant purchasers who surrender their local authority dwellings to build or purchase houses for their own occupation. It is significant that a scheme to stimulate housing demand and to release local authority housing for reallocation should have had, in the view of the agency, such an impact that the chairman felt he should advert to that as one of the main reasons for the success in the operation of the agency.
Perhaps, when the Minister for the Environment decided to cast his gratuitous insult on the Housing Finance Agency, he might have been better employed considering the sharp fall-off of belief in the ability of people of modest means to fund the purchase of their own houses by the abolition by the same Minister of that £5,000 surrender grant at the same time as he abolished the £2,250  grant for new houses, which was also available to people in a similar category, and at the same time as he abolished house improvement grants, which were available to people of all incomes for the purpose of improving and refurbishing and lifting the housing stock of the country. Perhaps he might also have had a somewhat guilty conscience about abolishing the time honoured, well-tested and successful method of providing SDA council and corporation loans at a fixed interest rate, which has always been one of the greatest attractions for people of modest means because they knew specifically the extent of their commitment from day one since the amount they borrowed was at a specific interest rate so they knew over the period of the loan exactly, to the penny, the amount of money that would be required to repay every month. Perhaps the Minister was guilty about glossing over in his announcement the fact, as becomes apparent in the circular which he issued to the local authority, that this Government have scrapped all that, a system which has endured since before the state was founded. SDA loans were being made available to people of modest income at set interest rates. This has now been scrapped by this Government. Those people are in future to be invited to realise, if they are lucky enough to get one of the loans from the drastically reduced fund for SDA loans now available, that they are going to have to suffer the worries of variable interest rates as do the people who have got house purchase loans from the building societies or other financial institutions.
It is disingenuous of the Minister to suggest that this move at this time will result in an apparent reduction of 3/4 per cent for people in that category. That is far from the truth. It is well known that interest rates generally oscillate, sometimes quite alarmingly. There have occasionally been times when the SDA loan interest rates have been higher, just as at present they are higher than building society rates. But those times, fortunately from the point of view of the SDA borrower, have been in the minority. It has much more  often been the case that the SDA loan, at set interest rates, is at a much more attractive rate than the building society rate. The fact that the SDA interest rate has been temporarily higher than the building society rate has not deterred potential borrowers because of the certainty that the loan borrowed at that rate resulted in a fixed repayment over the lifetime of the loan, and there was confidence on the part of the borrower that during the majority of the time of borrowing that interest rate would be cheaper, often substantially cheaper, than the rate being charged by building societies and other institutions to people who had borrowed at the same time and are on variable rates.
That certainty is a very important attraction for people on modest or restricted incomes. But this has been scrapped in one sentence by the Government. Forcing that type of borrower into the variable interest rate system, scrapping the £5,000 grant and scrapping the £2,250 grant for new houses will result in an extraordinary downturn in the number of people in this category who will be prepared in the future to build and buy their own homes. The inevitable consequence, not just in the long term but in the medium and short term, will be an increase once again in the numbers on the waiting lists for local authority houses. The SDA loans and the Housing Finance Agency, the former introduced before the foundation of the State and the latter in the last five years, were to cater for those in the category between people who clearly were unable from their own resources to house themselves and had to turn to a public authority for public authority houses and those who were able to procure funding from the financial institutions to purchase their own housing. Those at the lowest end of the margin of that group oscillate between being able to find public funding to fulfil their aspiration to buy their own house, in the certainty of their ability to repay that funding, and casting aside that aspiration and entering on to the local authority housing lists. At the other end of that margin are the people who just  about qualify to borrow from public funding for house purchase and those who are successful in obtaining funding from an institution. There is quite an amount of movement at this end of the margin between the financial institutions and the public money available.
But at the lower end are the people who have to make the choice between putting themselves to the pin of their collar, scrimping and scraping to get local authority funding to meet the aspiration which is widely held, weighing up all the factors — the grant aid available, the exactitude of their payments and, in present times, relative job insecurity — or not entering into those commitments, not attempting to seek deposits, not entering upon the commitment of purchasing their own house but instead applying for local authority housing to be provided at 100 per cent cost to the taxpayer. The people who have had to make that decision in the past will in the future feel that they have no option but to apply for a council or corporation house rather than risk taking on an SDA loan at variable interest rates. In that context those same people who will be forced back on to the waiting lists for houses will find themselves with little prospect of being housed by the local authority because the list will grow inexorably longer and the provision of money for the building of local authority housing next year has been reduced by £37 million. What that means is that there is virtually no new money provided to allow new starts of council houses during 1988.
Mr. Boland: Well, shame on Dublin County Council. If there are 500 houses empty, shame on Dublin County Council, its members and the Minister responsible. I hope the Deputy takes the opportunity to explain during the debate how a local authority can sit on a stock  of 500 houses and not allocate them. Shame on its sister authority which has a greater stock of empty houses.
Mr. Boland: The reduction of £37 million as between one year and the next in a local authority housing programme means that the £50 million will merely meet what is called — and the chairman will be familiar with the phrase — contractual commitments, existing housing contracts currently being carried out and which will not finish during 1987 but will spill over into 1988. That will burn up all or 99 per cent of the allocation for council housing in 1988. In any year, any capital provision for an ongoing programme such as this normally will allow something between 10 per cent and 20 per cent of the total provision to be allocated to new starts. The remainder of the allocation will be taken up in meeting commitments on contracts which were started during the previous year but which run on into the following financial year. Consequently, to reduce a programme of £87 million by £37 million means that there will be just no new money for new council houses next year. There will be, on the other hand, many new entrants on to the waiting list of people applying for council housing because of the disastrous policy of the Government in removing the grant incentives and in transferring the SDA loans on to variable interest rates and, indeed, something else that we shall move on to in a moment, applicants for those council loans will first be put through the hoop of trotting around to financial institutions to receive the requisite number of refusals before they will be given even the dignity of being considered for SDA loan purposes.
Mr. Quinn: How many of the Deputy's constituents did he advise not to avail of  that scheme? The Deputy is taking both sides of the road at the same time. My contention is that constituents of the Deputy have been told that they should not avail of this gimmick.
Mr. Boland: The consequence of this — and I think that we can see it quite clearly in the trend running right through the Government's attitude towards housing, both private and public — is that the Government are trying to opt out of housing, of providing incentives or aids for people to build or buy their own houses, or building houses for those who are unable from within their own resources to house themselves. Anybody who reads the circular which was issued to the local authorities on the day after the Minister's announcement dated 28 October, circular H10 87, will see clearly that the local authorities are told, for example, that “the capital available to individual housing authorities for publicly funded house purchase loans in 1988 will be at a level not exceeding 60 per cent of the amount of the allocation now standing notified for the current year”. That does not sit very lightly or easily with the oft professed commitment of the Minister or the Minister of State to support the publicly funded housing programme of the Government. The circular goes on to say — and this, indeed, is the real kernel of the arrangement announced by the Minister — that where apparently the banks and building societies have taken on to provide funding for a number of people who would otherwise qualify for SDA or HSA loans, the indignity that these people are to be put  through is that anyone who in future applies to a local authority, to Wicklow or Dublin County Council or Offaly or Monaghan County Council for an SDA loan is not going to be allowed even to fill out an application form.
Mr. Boland: They are to be told — they are to be requested, which is a nicer way of saying that they are to be told — that they are to go first to a building society and/or to a bank and only if the person is refused a loan by both the building society and the bank may he then apply to the local authority for a loan. This is according to paragraph 2 of the circular. It would be necessary for applicants who have been refused a loan by both the building society and the bank to produce documented evidence to this effect.
The circular goes on to say that provided the authority are satisfied that the applicant has genuinely sought and been refused a loan suitable to his needs from a building society or bank, the local authority may then consider the application in the normal way. That is proof positive of what I have been saying. Those of us who through all our political life have understood that people under a certain income level, whom we would all regard as being of modest means, whom we would all admire when we see them seeking to raise the necessary funding to buy and provide houses for themselves and their families, now realise that those people are no longer to find that the support of the public system is available to them, or that there are available to them, provided they satisfy the income criteria, loans to enable them to buy their own houses which will be repayable at a standard set interest rate over the lifetime of the annuity. Instead they are to be told that they are to visit the banks and building societies.
These are the self-same people who, especially in relation to the category I have referred to at the upper end of the margins, have traditionally found themselves unable to get funding from the  banks or building societies precisely because of their modest incomes. Indeed, I venture to suggest that in so far as the arrangement is successful in the State's shedding its responsibility to these people, in so far as it is successful in persuading banks or building societies to take on people from the categories that would previously have been entitled to SDA loans, what will be left to the State, as the future successful applicants for SDA loans, indeed at variable interest rates, will be the higher and potentially greater bad risks. The portfolio of SDA loans in the future will have a much higher bad risk element within it. It seems that those people will only get the availability of those SDA loans having been put through the extraordinary humiliation of having to go to institutions from whom they, and the institutions, know from the outset they have no prospect of receiving anything.
Consequently, I have to conclude that the Government, looking at their attitude towards housing, their abolition of the grants, their demolition of the well tried SDA system, their reduction of the amount of money available for local authority housing in 1988, just have no comprehension of how to introduce or implement an integrated, multifaceted approach to housing. All the things which have been put carefully in place over the last number of years, which resulted in this country having the shortest local authority housing waiting list for many years, which resulted in the Twenty-six Counties having a shorter total waiting list for council houses than the single London borough of Battersea, all that has been demolished, set aside and wrecked since March of this year. The grant structure is gone, the SDA loans structure is gone, the £5,000 surrender scheme is gone. All that is happening is a gradual and progressive withdrawal of the Government from the housing market, from the incentives, from the grant aid, from the loan funding and, indeed, on the other side, from providing incentives  to the private housing construction industry to provide private housing for sale to whatever market is left.
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