Why mortgage interest relief should not be reintroduced

Brendan Burgess

Brendan Burgess

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I was on Newstalk Breakfast this morning explaining why this is a bad idea. Here are my cog notes.

Sinn Fein proposal
  • 30% of the increased interest over the past year
  • Capped at €1,500
If I have €100,000 left on my tracker mortgage at ECB +1%, my interest charge will have gone up by €4,000 from €1,000 to €5,000. Sinn Fein wants to give me 30% of that or €1,200. That is nonsense. I have been paying around €1,000 a year interest for the last 10 years when other people have been struggling with €1,500 a month rent.

Other points

  • Despite the rise in mortgage rates, most people can easily afford their mortgage repayments, so they don’t need a subsidy from the taxpayer.
  • Home owners are generally much wealthier than renters. We should not be further subsidising the better off in society.
  • Even after recent rate rises, mortgage repayments are a lot lower than rent payments. And mortgage holders end up eventually owning their homes.
  • Renters are getting €500 each but the Shinners want to give mortgage holders up to €1,500?
  • I don’t agree with the tax credit for renters, but they definitely need it more than mortgage holders.
  • Mortgage rates from the mainstream banks are not high by historic standards. Yes, they are higher than they have been recently, but they have been very low for a long time. So rates of 4%, 4 ½% are about what one should expect and budget for when buying a house.
  • Most trackers were taken out between 2006 and 2008 when the ECB rate was between 3% and 4.25% , so an ECB rate of 4% is the same as what they borrowed at. When you take out a mortgage first, you expect to struggle. You make financial sacrifices and then after a few years, your mortgage becomes very affordable as you pay down the capital and your salary rises.
  • People on trackers have had 10 years of almost free money. During that time, they paid down their capital much faster than they had expected when they took out their mortgage.
  • Some trackers are on high rates, but they can save money by fixing at a lower rate. Of course, most are right to stay on their trackers for the long term security.
  • If you do want to spend my money helping out mortgage holders, then give it to first time buyers for 2 or 3 years. They need it far more than someone who has almost paid off their mortgage. By the way, I am not proposing that, but I would not be as opposed to it.
  • Having said all that, if someone can’t afford their rent, we give them a Housing Assistance Payment. I have long argued that the same principle should apply to mortgages. If someone would qualify for HAP because of a low or reduced income, and they have a mortgage, they should get a Mortgage Assistance Payment to help them stay in their home.
  • It’s not a solution to the Vulture Fund problem. That needs to be solved by limiting what the Vulture Funds charge, not by subsidizing the borrower
 
Brendan Burgess said:
Despite the rise in mortgage rates, most people can easily afford their mortgage repayments, so they don’t need a subsidy from the taxpayer.
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This is true. There will be some hard cases (there always are) but unemployment is literally the lowest ever recorded in Ireland and average weekly earning rose by 4.3% in the year to the first quarter of 2023.

I'd love a mortgage tax credit personally but there is no earthly way I need it!
 
There was nothing stopping them from switching to a low fixed rate anytime in the last few years. I did because of this forum and I'm grateful.
 
I heard your segment on NT this morning Brendan. Your strongest and best argument is that the Govt should help those who need the help, not give blanket relief to all mortgage holders. My advice, for what it's worth, prioritise making that point every time you're on air. It's very hard to argue against it.

Conversely, while undoubtedly tracker holders have benefited from low rates, and should be looking at things in the round, 'eaten bread is soon forgotten', as they say. Raising that particular point doesn't do anything to further your cause, if anything it detracts from the key message above.
 
nest egg said:
It's very hard to argue against it.
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I'm sure that some people will find a way.
E.g. that everybody should be helped.
It's like people who call for "the rich" to be taxed more.
If you ask them who "the rich" are they'll probably say "the guys who earn more than me".
 
I think Brendan has ably marshalled the various arguments against the re-introduction of mortgage interest relief.

I would put it more bluntly - taxpayers (which obviously includes renters) should not subsidise the purchase of private assets. Full stop.

But even if you disagree with that principle, the SF proposal still makes no sense in its own terms.

It would primarily benefit mortgage borrowers that benefitted from exceptionally low interest rates for over ten years and have already benefitted from the extended MIR introduced by Mr Noonan for home loans taken out between 2004-2012.

Why single out that cohort of borrowers for yet more taxpayer-funded relief?
 
ClubMan said:
I'm sure that some people will find a way.,,
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Alas nobody was arguing against that particular point, Brendan, if anything, was the "scoundrel" in the discussion, i.e. not wanting to help mortgage holders who are in distress, as he opposes mortgage interest tax relief!

His killer argument of course is that he is in favour of helping them, but that it should be targeted towards those who need the help. This is why I would encourage him to focus on that point, it takes the wind out of the sails of anybody who attempts to use the increase in mortgage arrears as a basis for introducing tax relief for all.

Brendan made a number of other points, and are all valid, however as if often the case in life, less is more. Even if you're right, it's not always the best move to make a point for the sake of it.

These radio pieces don't allow for long debates, my suggestion is if he sticks to the key points below on the next occasion, he'll be even more effective:
  1. Despite the rise in mortgage rates, most mortgage holders are not in distress
  2. Mortgage holders who are in distress should receive state support. If someone qualifies for HAP because of a low or reduced income, and they have a mortgage, they should get a Mortgage Assistance Payment to help them stay in their home.
  3. If a tracker holder is concerned about their ability to weather further rate increases, there are fixed rates available at lower cost to them today
  4. There should be a limit on what Vulture Funds charge over the ECB rate, rather than a subsidy to home owners
 
The problem is in many cases the people "who need it" could have helped themselves months/years ago by breaking/re-fixing/refinancing when it was clear rates were going to rise

In a sense you're penalising the people who had the foresight to lock in a lower rate
 
Brendan Burgess said:
It’s not a solution to the Vulture Fund problem. That needs to be solved by limiting what the Vulture Funds charge, not by subsidizing the borrower
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Agreed.

However, the Central Bank is, once again, dragging its customer service heels.

“It is understood Mr McGrath has, however, ordered the Central Bank to assess whether the underlying funding model for vulture funds in the non-bank sector warrants the high rates of up to 7% they are now charging some customers".

Why does it have to be ordered to make that assessment?
 
nest egg said:
I heard your segment on NT this morning Brendan. Your strongest and best argument is that the Govt should help those who need the help, not give blanket relief to all mortgage holders. My advice, for what it's worth, prioritise making that point every time you're on air. It's very hard to argue against it.

Conversely, while undoubtedly tracker holders have benefited from low rates, and should be looking at things in the round, 'eaten bread is soon forgotten', as they say. Raising that particular point doesn't do anything to further your cause, if anything it detracts from the key message above.
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Thanks nest egg

I agree with you. And I will focus on the point of "Helping those who need it should be the priority".

The radio discussions are a bit difficult to manage. They sometimes go off into tangents. Having said that, he did give me the floor first and I could have made that point up front.

A lot of people do talk about the "poor tracker mortgage holders" and I do think that needs to be put in perspective. I would much prefer a €100k tracker mortgage at 5% (which would benefit from SF's proposal) than a €300k mortgage fixed at 4% for the last few years - which would pay a lot more but get no benefit.

Brendan
 
Declaring a philosophical position first, I'm inherently hostile to all taxes. I accept we do need some taxes, but nothing like the levels of tax and government spending we have today. I believe the state should strive mightily to reduce taxes as a default position, and minimise spending as a matter of principle. Let's not even mention value for money!

So, based on a belief that the state is in a great position to reduce taxes (rather than increase spending) the question boils down to: should taxes be reduced across the board, or should allowances be made for those who pay mortgage interest? (Or rent, for that matter?) I believe there is a reasonable case to be made for giving tax relief on mortgage interest. The principle at play is equity between different taxpayers on the same income level. Someone earning say 75k with no mortgage is pretty comfortable. The same taxpayer with a whopping mortgage is considerably less well off. It is wrong to load these two taxpayers, with vastly unequal disposable incomes, with the same tax burden. Allowing a mortgage interest tax credit would encourage people to provide their own housing rather than rely on the state. This can only be a good thing. It should of course be combined with across the board tax reductions, in addition to automatic annual indexation of bands and credits.

(BTW, The same argument can be made for childcare costs, and is probably best addressed by allowing parents a personal tax credit for each child, equal to the amount of the weekly social welfare qualifies child payment. But, that's probably best for another post.)
 
The main reason for increasing interest rates is to reduce inflation. Why introduce something that will counteract the very aim it is trying to achieve?

At some point we have to return to normal interest rates. Should everyone get mortgage interest relief, should renters get more than just the €500 tax credit?

Where exactly do we draw the line? Are we just kicking the can down the road?
 
Sarenco said:
It would primarily benefit mortgage borrowers that benefitted from exceptionally low interest rates for over ten years and have already benefitted from the extended MIR introduced by Mr Noonan for home loans taken out between 2004-2012.

Why single out that cohort of borrowers for yet more taxpayer-funded relief?
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I would argue that it primarily benefits hard pressed working families that have drawn a mortgage in the past few years, are now paying high interest rates and have never benefited from MIR in the past since its been abolished for a few years now.

I also think that the argument that this benefits already wealthy people is wrong. Most people with a mortgage on their ppr are far from wealthy.
 
ArthurMcB said:
I would argue that it primarily benefits hard pressed working families that have drawn a mortgage in the past few years
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If you actually read the SF proposal (as summarised by Brendan above) it should be obvious that your argument is mistaken.
 
ArthurMcB said:
I would argue that it primarily benefits hard pressed working families that have drawn a mortgage in the past few years, are now paying high interest rates and have never benefited from MIR in the past since its been abolished for a few years now.

I also think that the argument that this benefits already wealthy people is wrong. Most people with a mortgage on their ppr are far from wealthy.
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Almost everyone has / had the opportunity to fix their rate and if on a tracker they benefited nicely for many years from very low rates. The current rates are not high if one looks at it from a historical perspective and as others have pointed out the government should not subsidise the purchase of a private asset.
 
Merowig said:
Almost everyone has / had the opportunity to fix their rate and if on a tracker they benefited nicely for many years from very low rates. The current rates are not high if one looks at it from a historical perspective and as others have pointed out the government should not subsidise the purchase of a private asset.
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I didn't squeal when I moved to Ireland and found myself on a relatively high fixed rate when so many others were on fixed trackers. Then last year I fixed at 1.9% for 7 years and the trackers are going North. That's how it goes.

BUT I do think that principal private residences are different from other asset classes, in that the state has an interest in keeping people housed, as otherwise it will need to deal with homelessness. I would prefer to see a model where if people are struggling with mortgage payments, they can get state help, in return for a % of equity passing to the state, which ultimately creates value for the state for social housing or homelessness. Wouldn't be popular mind!
 
Merowig said:
Almost everyone has / had the opportunity to fix their rate and if on a tracker they benefited nicely for many years from very low rates. The current rates are not high if one looks at it from a historical perspective and as others have pointed out the government should not subsidise the purchase of a private asset.
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Isn't that what the government is doing with the proposed auto enrolment scheme for pensions? Subsiding the purchase of a private 'asset' as in a pension fund?
 
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