Strong opposition likely within Government to restoring mortgage interest relief

There is likely to be significant opposition within Government to the reintroduction of mortgage interest relief in this year’s budget, flagged this week as a possible measure by Taoiseach Leo Varadkar.

According to several people likely to be involved in discussions on the issue in the summer and autumn, there will be strong opposition from officials in the Department of Finance to the measure. In addition, senior sources expect Minister for Finance Michael McGrath and Minister for Public Expenditure Paschal Donohoe will be sceptical about the proposal.

There is strong political pressure from backbenchers and some Ministers for measures in the budget — if not before — to ease pressure on mortgage holders who have seen monthly repayments rise steeply since last year. This week, the European Central Bank increased interest rates for the seventh time, further increasing pressure on some homeowners who have seen mortgage payments increasing by thousands of euros annually.

Phased out

On Thursday, Taoiseach Leo Varadkar confirmed that the reintroduction of mortgage interest relief would be considered as a budget measure, though he was careful to say that it was one of several possibilities.

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Mortgage interest relief was phased out between 2009 and 2020. Prior to its abolition, it was costing the exchequer €700 million a year. An exercise in the Department of Finance last year found that reintroducing the measure would cost €500 million a year. It is certain that there would be strong opposition in the department. The move would place Government policy in direct opposition to ECB policy, something which was cited by several senior sources.

Other objections cited the cost, difficulty of unwinding the policy in the future and danger that the move could actually drive up house prices further, according to senior sources.

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It is expected that officials will work on alternatives over coming months. Pressed on this and related issues at the Fianna Fáil parliamentary party meeting this week, Mr McGrath raised the possibility of a code of practice for mortgage switching which would make it easier for those on high-interest rates to avail of cheaper deals elsewhere.

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Another option suggested by one senior figure is reviving the mortgage interest supplement, a means-tested social welfare payment to assist people in difficulties with their mortgages which was abolished after the financial crisis. This is likely to find greater favour in the Department of Finance, as in budgetary terms it would not count as a tax measure, but social welfare expenditure. This means it would not affect the tax package which is also planned for the budget. However, neither would it have anything like the general application of the return of mortgage interest relief.

Senior sources also stressed that if mortgage interest relief is reintroduced, it would mean a smaller package of tax reductions in the budget.

Speaking to reporters on Thursday, Mr Varadkar said that tax reductions were a priority for the budget.