Peter Mathews (Dublin South, Fine Gael)
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Question 365: To ask the Minister for the Environment, Community and Local Government if the Housing Finance Agency sourced loans on the open market in the early 1980s or if this money was provided from the Exchequer; if the agency or the local authority it advanced money to would bear a financial cost from reducing the interest rate of 12.5% on a local authority mortgage; and if he will make a statement on the matter. [31138/11]

Willie Penrose (Longford-Westmeath, Labour)
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In the 1980s the Housing Finance Agency sourced long term fixed rate finance in the form of bond issues on the Irish pound market. These bonds are due to mature in 2018. Funds were on lent by the Agency to local authorities and then by local authorities to individual households at a rate of 10.5%. The mortgages represented exceptional value at the time and into the early 1990s.

However, the structural fall in interest rates since the mid-1990s precipitated a substantial increase in loan redemptions, as borrowers were given the right to prepay these loans without penalty from 1989. While borrowers have had the benefit of penalty-free prepayment the Agency has had to bear the costs arising from the mismatch arising from different amounts still outstanding on the bonds and the mortgages. This amounted to €4.9 million in 2010 and this mismatch will continue to 2018 (when the bonds fall due for repayment).