Sinn Féin has proposed the introduction of mortgage interest relief and the Minister for Housing Darragh O’Brien has said it will be considered in the context of the budget. Sinn Féin has identified tracker mortgage holders and those whose mortgages have been sold to vulture funds as the two categories of borrowers who have suffered the most as European Central Bank rates have risen from zero to 4 per cent in less than a year.
The proposal is to give a tax credit equal to 30 per cent of the increased interest cost up to a maximum of €1,500.
This is a poorly thought-out proposal. Despite the increases in mortgage rates, most mortgage holders are not in distress and can cope with the higher interest. They don’t need any help from the taxpayer. Sure, they would like it, but most don’t need it.
Take someone who took out a tracker mortgage 15 years ago who has €100,000 left on their mortgage today. Their interest bill will have risen from €1,000 a year to €5,000 a year. Despite the sharp increases in interest rates, their housing costs are still only €5,000 a year, yet Sinn Féin wants to give this person 30 per cent of the increased interest or €1,200.
In contrast, a first-time buyer who took out a €300,000 mortgage a year ago on a fixed rate of 5 per cent will get no help as the amount of interest they have paid has not increased.
So, Sinn Féin is proposing to give a €1,200 subsidy to someone who is paying €5,000 a year interest but nothing to someone paying €15,000 a year in interest. Furthermore, someone who took out a mortgage 15 years ago is very likely to be on a much higher salary than someone who took out a mortgage recently. Sinn Féin is proposing to help the better off in society.
Is mortgage interest relief a really bad idea?
With the European Central Bank raising rates to a 22-year high, should Sinn Féin’s proposal for an introduction of mortgage interest relief be entertained by Housing Minister Darragh O’Brien? Brendan Burgess, founder of the consumer forum, askaboutmoney.com, thinks it is a poorly thought-out plan.
It is argued that as we give tax relief to private renters, we should also give it to mortgage holders. This argument does not stand up to scrutiny. Even after the recent mortgage rate increases, it is still much cheaper to pay a mortgage than to pay rent. And the mortgage holders will eventually own their own home.
In general, mortgage holders are on higher incomes than renters. We pay renters €500 each in tax credit, yet the proposal is to give up to €1,500 to mortgage holders. This is another example of giving more help to the better off than those on lower incomes.
Although mortgage rates have increased sharply over the past year, the current rates are not out of line with the long-term average mortgage rates a borrower should expect to pay. When today’s tracker mortgage holders drew down their mortgages more than 15 years ago, the ECB rate was in a range between 3.5 per cent and 4.5 per cent. So today they are paying the interest rate they budgeted for when they bought their house. Why should they be subsidised?
First-time buyers
I am opposed to a blanket mortgage interest supplement, but if one has to be introduced it should be given to those who need it most. And those who need it most are first-time buyers. The early years of a mortgage are the most difficult. It would not be too objectionable to pay a supplement to all first-time buyers for the first three years of their mortgage.
There are two other groups of mortgage holders who need help and support from the Government – those whose mortgages have been sold to vulture funds and those who are struggling with their mortgage repayments.
Those former customers of mainstream banks whose mortgages have been sold to vulture funds are paying up to 7.5 per cent interest. They would be paying about 4 per cent had their mortgage not been sold. But giving them mortgage interest supplement is not the solution. That is asking the taxpayer to solve a problem caused by the vulture funds. Instead, we should tell the vulture funds to solve the problem they created.
The best way to help customers of vulture funds is to reduce the rate of interest they are being charged. Vulture funds should be required to offer their customers the same rates that the original lender is offering their customers today. If this were done, then no one would lose out by having their mortgage sold to a vulture fund. When these mortgages were originally sold, both the Central Bank and the Government assured these customers that they would not lose out by having their mortgages sold. The Central Bank and the Government can uphold these assurances by introducing controls on the rates vulture funds can charge.
Mortgage holders in arrears also need some help. They worry about losing their home. They should be helped with their monthly mortgage repayments. Any such subsidy should be repayable when the borrower’s financial circumstances recover or when they sell their home. The net effect is that it would cost the taxpayer very little to provide such help and it would keep people in their home.
If their home were repossessed, the State would face a much higher cost in providing them with social housing – so not only would helping them with their mortgage payments cost the taxpayer very little, it would also save the taxpayer money in the long run.
Sinn Féin should drop this poorly thought-out proposal for a blanket mortgage interest supplement and focus instead on proposals to help those who need help most.
Brendan Burgess is the founder of the consumer forum Askaboutmoney.com
