Thursday, 5 March 2020
Department of Housing, Planning, and Local Government
Home Loan Scheme
1250. To ask the Minister for Housing, Planning, and Local Government the reason for the recent increase in interest in the Rebuilding Ireland home loan scheme from 2.25% to almost 3% on a 30 year term; when the increase was agreed; and if he will make a statement on the matter. [3772/20]
The Rebuilding Ireland Home Loan (RIHL) launched on 1 February 2018. When the RIHL was initially being developed, it was estimated that the drawdown of loans under the scheme would be approximately €200 million over three years. The RIHL proved to be more successful than initially anticipated and following discussions with the Department of Public Expenditure and Reform an increase in funding of €363.6 million for 2018-2019 was communicated to all 31 local authorities on 15 August 2019.
When the RIHL was introduced on 1 February 2018 three interest rate products were offered:
1. variable interest rate priced at 2.3%;
2. A 25 year fixed rate priced at 2%
3. A 30 year fixed rate priced at 2.25%
From August 2019 the variable interest rate was no longer offered as part of the scheme.
Loans issued under the RIHL must be on a prudential basis so as to protect the financial interests of both borrowers and local authorities, and I have highlighted in the past that this could, for future tranches of funding, result in changes to the operation of the scheme, including inter alia interest rates, depending on the performance of the loan.
An independent review of the RIHL was undertaken in 2019 by the Economic and Social Research Institute (ESRI). This review strongly endorsed the RIHL as a positive affordability measure. However, it recommended that the cost of the RIHL should be comparable to that of the longest fixed rate mortgage available in Ireland, which is typically 10 years.
Accordingly, following engagement with the Department of Public Expenditure and Reform, the interest rate on RIHL mortgages increased by 0.745%. This increase will not apply to loans issued on applications received before 15 January 2020. Similarly the cost of existing RIHL loans is unchanged because the RIHL rate is fixed for the lifetime of the loan unlike any other mortgage currently in Irish market.
This interest rate increase is appropriate because;
Ø The additional revenue will fund an increase in the contribution to the Local Authority Mortgage Arrears Resolution Process (LA MARP) Premium Fund from 0.25% to 0.995% which will increase the funding available to support the resolution of unsustainable arrears. The LA MARP Premium Fund was established in 2012 to support local authorities in dealing with the shortfalls that arise in resolving unsustainable arrears.
Ø As RIHL loans are targeted at higher risk borrowers it is important that credit risk is adequately priced into the cost of the loan to ensure that this product remains viable and sustainable.
Ø It is important to ensure that those borrowers who can get credit in the commercial market do so, and are not incentivised to attempt to gain access to this scheme to avail of cheaper interest rates. It is essential that limited state resources remain focused on maximising the benefit to those who are most in need of the support which this product offers.
Further additional funding for lending of up to €210 million has now been secured to ensure the continuation of the Rebuilding Ireland Home Loans scheme (RIHL) into 2020.