Dáil debates

Thursday, 27 May 2010

Other Questions.

Social and Affordable Housing

4:00 pm

Photo of Willie PenroseWillie Penrose (Longford-Westmeath, Labour)
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Question 6: To ask the Minister for the Environment; Heritage and Local Government the position regarding the home choice scheme; the funding that was set aside at the set-up of this scheme; the structures that were required to be put in place as a guarantee to deal with possible defaults; if the start up costs for this scheme were derived from any earlier funding programme; and if he will make a statement on the matter. [22249/10]

Photo of Michael FinneranMichael Finneran (Minister of State with special responsibility for Housing and Local Services, Department of Environment, Heritage and Local Government; Roscommon-South Leitrim, Fianna Fail)
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More than 1,400 prospective purchasers formally registered interest on the dedicated home choice loan website and to date, 68 applications have been made. Of these, four have been approved, with three of these now drawn down, 36 applications have been turned down, seven have been withdrawn and further information has been sought in respect of 21 applications.

The scheme is demand led. As such, no budget has been set and no moneys that could be deployed elsewhere have been ring-fenced for the scheme. The extent of the loan book arising will depend solely on the level of demand and loans draw down.

The scheme is underpinned by rigorous lending criteria to protect the financial position of local authorities as well as prospective first-time buyers. All applications are assessed having regard to an applicant's ability to pay, credit history and all other aspects of the formal lending policy. An applicant's ability to pay is also stress-tested to assess his or her ability to repay at current rates and in the event of significant interest rate rises.

In order to minimise risk and to ensure that the processing of loan applications is carried out on the basis of the fullest available information on the financial standing and general credit worthiness of applicants, the credit policy includes a requirement to perform credit checks for each application. Credit checks are carried out using information provided by the Irish Credit Bureau. In addition, judgment checks are carried out using information from the Courts Service. These checks are intended to ensure that local authorities are equipped with the fullest information so that they can avoid unnecessarily risky lending while continuing to lend to low-income but credit-worthy households.

As with all other local authority mortgage lending, where a loan stands in default, section 11(10) of Housing (Miscellaneous Provisions) Act 1992 provides that a local authority may make such monetary arrangements with a borrower as it considers equitable to take account of the particular circumstances of the borrower. My Department issued guidance recently to ensure that cases of local authority mortgage arrears are handled in a manner that is sympathetic to the needs of the particular household, while also protecting the position of the local authority concerned. This guidance is closely based on the statutory code of conduct introduced in February 2009 by the Financial Regulator. However, given the comprehensive nature of the credit policy, I do not anticipate significant difficulties with arrears under the home choice loan scheme.

Costs of approximately €280,000 were incurred in 2009 in establishing the scheme, including the setting up of a central processing unit within the Affordable Homes Partnership, AHP. These costs were met fully from within existing resources within the AHP. It should be noted that a significant element of the staffing costs was incurred in the development of the loan processing model which applies to the home choice loan but which has also now been used in the development of revised systems for processing and credit checking of normal local authority house purchase loan applications under other schemes such as affordable housing, shared ownership, etc.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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I thank the Minister of State for his reply. In earlier questions on this matter, the Minister of State said the home choice programme was a response to the credit crunch. We know the credit crunch was caused by a number of factors, one being light touch regulation and over-lending as a result and an over-valuing of property in the property market and loans being granted on the basis that properties would increase in value indefinitely. To qualify for this programme, one has to have received two refusals from two different financial institutions before approaching the local authority. Will the Minister of State agree that this is creating a double jeopardy for borrowers in that they have been refused twice? The most likely reasons for refusals is a person's income being too low or the property being over-valued. The Minister of State is creating a jeopardy for these people by facilitating a situation whereby the local authorities will grant a loan. The Minister of State in his response states over 4,000 people inquired about this scheme and four people have been given approval. Is this approval in full or approval in principle because there is a significant difference?

The departmental website advertises this scheme as not being applicable to the affordable homes programme. Given that local authorities are now selling affordable homes on the open market, is the home choice programme also open to those applicants?

Photo of Michael FinneranMichael Finneran (Minister of State with special responsibility for Housing and Local Services, Department of Environment, Heritage and Local Government; Roscommon-South Leitrim, Fianna Fail)
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The Deputy has asked a number of questions. I agree the credit crunch was the reason I introduced the home choice scheme because the banks were not lending and the information was that people were finding it difficult to meet the 20% deposit which banks and financial institutions were seeking. With regard to two refusals, this is not a new practice. It is well known to those Members who have served on local authorities that this stipulation applies to all local authority loans since 1987. Therefore, the home choice loan stipulation is no different from any other local authority loan.

The number of prospective purchasers who applied is 1,400. Four people have been approved, three people have turned down the loans and further information is being sought from 21 applicants.

With regard to the affordable homes being put on the open market, I made a number of changes to the scheme in recent times, as the Deputy may be aware. It now applies to second-hand homes but I have not extended it to include affordable homes.

Photo of Terence FlanaganTerence Flanagan (Dublin North East, Fine Gael)
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I thank the Minister of State. Has the Minister of State and his Department decided to continue with this product which is a failed product? Any commercial institution would have closed it down immediately after a couple of months, if not within six months. The public is voting with its feet on this issue. They are staying away from it as they are fearful of a repeat of the sub-prime lending issue. I ask the Minister of State to explain the €500 million fund which was earmarked for this product. What is happening that money? Would it not be put to better use in other areas?

Photo of Michael FinneranMichael Finneran (Minister of State with special responsibility for Housing and Local Services, Department of Environment, Heritage and Local Government; Roscommon-South Leitrim, Fianna Fail)
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I disagree with the Deputy as regards the loan. It is in existence as a safety valve, an alternative for people who cannot get a loan from the financial institutions. There is no great activity in the financial institutions on the granting of loans for house purchase by first-time buyers. On account of the loan being available, it is possible that the financial institutions are prepared to give people loans. As regards the level of activity, since the changes were introduced recently in April, the number of visits to the dedicated website has increased by 154%. New visits represent approximately 80% of all traffic on the website. We know this because of the number of contacts from auctioneers around the country. There is no significant cost involved in providing this loan. I am not prepared to remove it until I am satisfied that the financial institutions are making loans available to the public, especially first-time buyers.

Photo of Terence FlanaganTerence Flanagan (Dublin North East, Fine Gael)
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What about the €500 million?

Photo of Michael FinneranMichael Finneran (Minister of State with special responsibility for Housing and Local Services, Department of Environment, Heritage and Local Government; Roscommon-South Leitrim, Fianna Fail)
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This is demand-led scheme so there is no pot of money, as it were. This money is drawn down from the HFA as required.

Photo of Ciarán LynchCiarán Lynch (Cork South Central, Labour)
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The figures speak for themselves. On the affordable homes aspect, I do not know if the Minister of State has made a final decision whether the scheme will be extended into the area of affordable homes. My advice would be that he should not extend it because there are already two jeopardies in this programme as I have outlined. If local authorities who were trying to get rid of affordable homes were in a position to also finance them, the Minister of State would be creating a third jeopardy.

Photo of Michael FinneranMichael Finneran (Minister of State with special responsibility for Housing and Local Services, Department of Environment, Heritage and Local Government; Roscommon-South Leitrim, Fianna Fail)
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The loan does not apply to the affordable homes side. People will need to appreciate there are existing annuity loans with local authorities for people in certain categories who do not reach the level of income of those entitled to apply for a home choice loan.