Government reluctant to reintroduce mortgage interest relief as rates soar

A number of ministers have cautioned against any move to reintroduce mortgage interest relief, indicating that it would be too expensive to implement. File Picture: Unsplash

Ministers are extremely reluctant to reintroduce mortgage interest relief, despite warnings that many homeowners can expect further pain in the months ahead.

A seventh consecutive hike in interest rates in less than a year has added pressure to struggling mortgage holders, with some now paying €420 more a month.

While Finance Minister Michael McGrath is exploring all options to help mortgage holders with spiralling costs, it is understood there are serious concerns that mortgage interest relief, costing hundreds of millions of euro per year, would significantly impact what could be done around income tax and supports for renters.

A number of ministers have cautioned against any move to reintroduce mortgage interest relief, indicating that it would be too expensive to implement.

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A number of ministers have cautioned Finance Minister Michael McGrath against any move to reintroduce mortgage interest relief. Picture: Damien Storan.

It comes as the European Central Bank (ECB) yesterday announced a further 0.25% rate hike. Since last June, the bank has raised rates by 3.75%, adding further pressure on households already impacted by soaring energy and food prices.

While those on tracker mortgages will feel the immediate impact of yesterday's rate hike, adding €35 per month on a €250,000 mortgage, householders approaching the end of their fixed-rate terms and moving on to new rates will see significantly higher monthly repayments.

People looking to buy a new home are facing a double hit of house price inflation combined with significantly higher repayments than they would have encountered a year ago.

Taoiseach Leo Varadkar said the latest interest-rate rise is "further bad news for mortgage holders", but added that any decision around reintroducing mortgage interest relief would have to be considered as part of the budget in October.

It is something we will consider, but I do need to be frank with people — the tax package can only be so big," he said.

“We want to do something, obviously, to help workers who are paying an awful lot of income tax, particularly middle-income people paying a lot of income tax in Ireland, more than they would in other English-speaking countries, so we want to make sure that we honour that programme-for-government commitment to reduce income tax and to index bands and credits.

“And then after that, we can look at other things, for example tax concessions for mortgage holders and landlords to encourage them to stay in the market."

Taoiseach Leo Varadkar: 'We want to do something'. Picture: Careth Chaney/Collins Photos

'Competition around resources'

Sources have indicated that no specific measures, either around the cost of living or those targeted at mortgage holders, have been drawn up yet, with a "lot of competition around resources".

The Government is still awaiting the Summer Economic Statement to decide on how much will be allocated on tax and expenditure, but it is expected that a tax package in the region of €1bn to €1.5bn will be available.

However, the Coalition is conscious that any mortgage interest relief would eat up a significant chunk of this, given the fact that Sinn Féin's proposal, which only covers certain types of mortgages, would cost around €400m up to the end of the year alone.

"It's such a significant and immediate cost, even for a small cohort," one minister said.

I think there is a wariness around it — once you introduce it, how do you remove it?"

He suggested that other tax measures that target a wider group would be preferred.

"We were in a period of historically low interest rates and now that has changed, so do you fully compensate for that, or do you find other ways [to support people] through the overall tax package?"

One junior minister also warned that mortgage interest relief tends to help those who are most well off.

Head of the ECB, Christine Lagarde, yesterday warned households, businesses, and investors to expect more financial pain with further rate hikes to be announced in the coming weeks.

Ms Lagarde made it clear that the ECB was not for “pausing” interest-rate hikes, and that further action was on the way until inflation was effectively reduced.