Peter Mathews (Dublin South, Fine Gael)
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Question 157: To ask the Minister for the Environment, Community and Local Government if he or legislation prevents local authorities from reducing the interest rate of 12.5% charged on loans drawn down under the Small Dwellings Act; and if he will make a statement on the matter. [35211/11]

Phil Hogan (Carlow-Kilkenny, Fine Gael)
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The applicable interest rate paid by local authority borrowers on fixed rates is set by reference to prevailing fixed interest rates at the time of loan draw down. While there is no legislative provision that prevents local authorities from reducing these rates, the rates were contractually fixed at the time of drawdown and they remain so. Charging a new rate would not be possible without a new mortgage agreement. However, this would affect only the borrowers' cost of funds. The local authority's cost of funds would remain at the higher rate as fixed in the 1980s. This would impose significant ongoing costs on local authorities when resources are already under considerable pressure and when the borrowers in question are already permitted to redeem such loans without any interest rate penalty and refinance them in the private sector. This represents a significant concession, having regard to the redemption penalties (of up to six months interest or more), applied by commercial lending agencies in the event of early redemption of such mortgages.

The loans in respect of which interest rates in excess of 10% apply were issued by local authorities prior to 1991 and reflect the long-term costs of the funds to the Housing Finance Agency (HFA) and the Local Loans Fund prevailing at the time these loans were advanced. Rates were fixed for the life of the loan (generally 25–30 years). The introduction of variable interest rates for local authority mortgages provided borrowers with increased flexibility and choice.

The standing policy position regarding high fixed interest rates on local authority loans, following review in consultation with the Department of Finance, has been that a State subsidy to reduce such interest rates would not be appropriate.