Mortgage interest relief: How do I apply and how much can I save?

The Minister for Finance, Michael McGrath, confirmed the details in today’s budget of what have been described as targeted mortgage interest relief measures which will cost the exchequer €125 million and save more than 150,000 home owners up to €1,250 a year.

The relief is aimed at offsetting some of the impact of 10 successive interest rate increases from the European Central Bank which has seen the monthly cost of some mortgages climb by between €300 and €500.

This is good news for all mortgage holders, isn’t it?

No, the measures are as promised – targeted at the people who have been asked to pay a very high price for multiple rate hikes imposed by the European Central Bank since July 2022 – namely tracker mortgage holders and those on variable rates. It will benefit about 160,000 homeowners, while more than half a million others who have fixed-rate mortgages or mortgages of less than €80,000 will see no benefit from the tax relief.

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Why is it that tracker mortgage holders are being offered this benefit? Have they not been on the pig’s back for a decade now?

It is undoubtedly true to say that for many years tracker mortgage holders benefited from ECB-imposed interest rates which were at, or close to, zero. Meanwhile, people on standard variable rates and fixed rates with Irish banks were paying substantially more for their home loans. Those who have been paying higher rates for years could be forgiven for questioning why tracker holders are being looked after now but the flipside of that is that, through no fault of their own, many homeowners have seen the cost of servicing their loans go through the roof as a result of the ECB hikes. That has placed many people – many of whom bought at the height of the last boom when tracker mortgages were commonplace – paying thousands more now than they might have budgeted for. That has left many exposed and vulnerable to falling into arrears.

[ Budget 2024: ‘Tailored’ mortgage relief could easily unravel on Government ]

[ Budget 2024: ‘Targeted’ mortgage relief planned for homeowners hit by interest rate hikes ]

Can you break down the relief for me?

The relief will be on the table for people with a home loan of between €80,000 and €500,000 at the end of last year and will cover changes to mortgage repayments over the course of 2023, up to a maximum of €1,250.

So will I be able to claim relief on all the rate increases imposed by the ECB?

No. The relief is being made available on the increased interest paid on a homeowner’s mortgage in 2023 compared with what they paid in 2022. Bearing that in mind, it is worth noting that 2½ percentage points of the European Central Bank increases were introduced before the end of last year with a further two percentage points rolled out in 2023.

Okay, that is confusing. Can you explain?

In the simplest of terms, if you were paying a mortgage of €1,000 a month up to July 2022 and your repayments climbed to an average of €1,200 a month by the year’s end as a result of ECB hikes, then the annual cost of your loan in 2022 came in at €13,000. If the average monthly repayments climb to €1,400 for the whole of 2023, then the annual cost of your loan will be €16,800. You can then claim the 20 per cent tax relief on the difference between the 2022 payments and the 2023 payments which, using this example, will be €3,800 – a total of €720. Based on the Government’s estimates, the average savings will be €757 per applicable homeowner.

That’s not too shabby, is it?

It is better than nothing but, according to Mark Coan of financial advisers moneysherpa.ie, many people will see savings of closer to €500. He said that someone with €80,000 left to pay on their home loan might see relief of about €250 while someone with €132,000 outstanding might benefit to the tune of €410.

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How do I apply?

You will have to apply via revenue.ie and will need to provide mortgage statements for 2022 and 2023.

People have welcomed the relief I suppose?

As Paul Murgatroyd, director of research at estate agents DNG, said: “No borrower on a variable or tracker rate mortgage will turn down extra money back in their pockets.”

However, he pointed out that the savings are “limited and are backward-looking, and the fact that the scheme will only operate for one year and will be based only on the increased amount of interest paid in 2023 compared to 2022 means the benefit to individual borrowers will be relatively small in nature”.