Dáil Éireann Debate, Tuesday - 7 March 2023
225. Deputy Matt Shanahan asked the Minister for Finance if his Department is currently considering measures to reintroduce mortgage interest relief, given the sharp compounded rises in mortgage interest rates that many families are facing at the moment; and if he will make a statement on the matter. [11669/23]
Amharc ar fhreagraAs 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 no 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.
In relation to mortgage interest relief, and as the Deputy will be aware, the 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. 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 €280 million in 2005.
While I am acutely aware that there have been increases in certain mortgage rates by some 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 per cent compared with 2.61 per cent in December 2022. The Irish average interest rate on new mortgages is now below the eurozone average. In December, Ireland had the third lowest mortgage rates in the eurozone. The differential between the Irish and average eurozone interest rates for new mortgages declined from 1.40 per cent at the end 2021 to -0.26 per cent in December 2022.
The data also indicate that a significant portion of new mortgages, over 93 per cent in December 2022, are now fixed rate mortgages and this will protect borrowers in the event of a rise in official and market interest rates at least 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 home owners 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.
As the Deputy will appreciate, the reintroduction of the relief, or even the reintroduction of a more tailored or selective form of mortgage interest relief, is likely to involve very significant costs. Of course, the precise cost would depend on the form of the relief, but it would undoubtedly have a substantial cost.
Therefore, I have no plans to reintroduce mortgage interest relief at this time. It should also be noted that the recent report of the Commission on Taxation and Welfare put forward no case or recommendation for the reintroduction of relief for mortgage interest. Further, the OECD has recommended limiting or phasing out mortgage interest relief on owner-occupied housing.
Finally, as the Deputy will be aware, a tax package of over €1.1 billion was announced in Budget 2023, which included a significant income tax package. Budget 2023 also included a substantial cost of living package and a large range of one-off measures to assist households with cost of living pressures and Government has recently announced further supports to assist our citizens.
