Dáil Éireann Debate, Tuesday - 9 May 2023
51. Deputy Pearse Doherty asked the Minister for Finance if he will introduce temporary and targeted mortgage interest relief for mortgage holders impacted by rising interest rates; and if he will make a statement on the matter. [21747/23]
View answerAs the Minister for Finance, Deputy Michael McGrath, knows, since July, the European Central Bank, ECB, has increased its key interest rates seven times, with at least one further increase being expected in the time ahead. These interest rate hikes are putting real pressure on households that have mortgages. It has resulted in a significant shock for hundreds of thousands of borrowers. Last week, we heard the Central Bank say that 20% of all borrowers and mortgage holders have seen a 50% increase in the cost of repaying their mortgage. That is an average of approximately €5,000. Given the difficulties that so many households are facing, will the Minister introduce mortgage interest relief in a targeted and time-bound fashion to provide the much-needed support for these homeowners?
I thank Deputy Doherty for raising this issue. As I have stated previously in the House, the position is that the formulation and implementation of monetary policy in the eurozone and the setting of official interest rates is an independent matter for the ECB. The Government has neither a role in setting official interest rates nor in setting the retail interest rates that lenders may charge on their loans, including mortgages. That is a business and commercial matter for individual lenders.
As the Deputy will be aware, mortgage interest relief for principal private residences was phased out on a gradual basis over the period 2009 to 2020. The decision to abolish it was taken in the wake of the financial crisis, with the cost of the relief being one of the influencing factors. It cost more than €700 million in 2008, for example. Prior to its curtailment and eventual abolition, the top two income deciles in 2005 accounted for close to half of the tax forgone through tax relief. This issue was highlighted in the findings of the 2009 Commission on Taxation report. The relief cost approximately €289 million in 2005.
While I am acutely aware that there have been increases in a number of mortgage rates offered by lenders, it is important to point out that mortgage interest rates, in particular, fixed interest rates, have fallen over the past number of years. For example, in December 2014, the average level of fixed interest rates for new lending was 4.11% compared with 2.83% in February 2023. The Irish average interest rate on new mortgages is now below the eurozone average and, in February, Ireland had the third-lowest mortgage rates in the eurozone for new mortgages. The data also indicate that a significant portion of new mortgages, 93% in February 2023, are now fixed-rate mortgages and this will protect borrowers in the event of a rise in official and market interest rates for the period that the interest rate is fixed.
The introduction or reintroduction of mortgage interest relief for principal private residences may not be the best course of action to assist homeowners with rising interest rates. For example, there is additional scope for many borrowers, in particular variable rate mortgage borrowers who have built up equity in their home, to look at alternative mortgage options and to reduce their mortgage costs.
I see the clock has begun to tick, so I will conclude by saying that for all these reasons, it is my own view that the annual budget will be the appropriate time to decide how scarce resources can best be deployed to support different groups of people including mortgage holders, renters, workers and people who are on fixed incomes. I know we will have a considerable debate over the next number of months about what the correct balance is on the package moving forward.
The Minister spoke about scarce resources, but people will be mindful that the budget’s surplus is predicted to be €10 billion this year. While the Minister is speaking about October as a time to take decisions, a letter is about to land next week on the floors of hundreds of thousands of individuals to tell them that their mortgage costs have risen again.
The Central Bank’s report last week was really important because it told us that on average 20% of homeowners have seen their mortgage interest rates increase by €4,800. That was before the ECB hike of last week. It was before any potential other hikes. People are telling us that they feel trapped, they feel abandoned and that they are paying €523 per month extra. That is more than €6,000 per year, yet the Minister is saying he may consider this in October. The Government has a responsibility to shelter people who have seen a sudden and sharp shock in their income.
Many of them did not plan for an additional €5,000 or €6,000. Mortgage interest relief is not a way of insulating people from all the effects of this but it will take off the sharp edge. Is the Minister open, even in October, to introducing mortgage interest relief? He championed it in opposition but conveniently found a way to abandon these households at this point and to wash his hands of them.
As the Deputy well knows, when I advocated in opposition for mortgage interest relief, it was for an extension of the relief, which was successfully secured by the then Opposition. Those are the facts and the Deputy knows that. He referred to the surplus this year, which, as he knows well, is coming from windfall corporation tax receipts, so the Government has to take that into account in the decisions we make. The commitment I have given is that in the lead-up to the budget, we will consider all the options. There are going to be a lot of demands on the Exchequer. The Deputy rightly highlighted the plight of many mortgage holders and I acknowledge, of course, the significant additional burden the seven increases have placed on many mortgage holders.
Nevertheless, there are others, too, who will make the case for taxpayers' support, such as renters, workers in the context of income tax relief and people on social welfare. Sinn Féin was calling in the House earlier for increases in core social welfare rates and help for pensioners as well. There are a lot of demands and calls for limited State resources. We will consider all options. I am conscious of the impact on mortgage holders but we will have to consider it in the context of the budget.
Not only the Minister but his party leader, the Tánaiste, called for mortgage interest relief rates to be increased when he was on this side of the House but, again conveniently, he forgot all about that when he got back into power. The Minister made the point that budget time is the appropriate time to examine this, but there have been changes at other times and the Finance Bill passed in the Seanad just a few hours ago. There have been changes to hospitality tax measures in the tourism sector; there have been tax changes regarding solar panels. There has been a €1 billion housing package, including the waiving of fees for developers, yet some households are paying an additional €5,000 or €6,000 in mortgage interest costs and the Minister says he will do nothing until at least October. In fact, October's budget will set the changes for January of next year, yet people are wondering how they are going to meet their repayments.
That is the reality of what we are facing. The Minister facilitated this. As a member of the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach, he blocked my legislation, with Fine Gael, and facilitated the sale of many of these loans to vulture funds. These households are now paying 8%, yet the Minister says he will do nothing about it. It is not acceptable. He has a moral responsibility to do something on mortgage interest relief. Taking a portion of the costs, up to €1,500, is an appropriate measure and can be afforded.
I have acknowledged the real-life impact on mortgage holders of the changes in ECB rates. The Deputy will always quote the very highest figures and the highest examples. The same Central Bank report to which he referred also points out 40% of mortgage holders are protected because they are on fixed rates. In the various scenarios it looks at, the average impact is 13% to 16%. That is not insignificant and there are others, of course, for whom the impact is considerably higher.
I accept that and recognise it, which is why I have been engaging directly with the Central Bank. It should not be the case that because of an increase in a mortgage rate brought about by an ECB change of monetary policy, which is happening with a view to bringing down inflation, individuals should end up in arrears. That would be a failure of the system and of the code of conduct on mortgage arrears. The Central Bank has stepped up its regulatory and supervisory function and activity in that regard. The Deputy knows that, given he has met its representatives directly. I have also made the point that many of those who are now with the non-bank sector should be enabled to switch back their mortgage to the main banking sector, and I believe we will see activity and movement in that regard.
