Bizarre, problematic and a kick in the teeth are not words that the Minister for Finance Michael McGrath would have hoped to hear after announcing what should have been one of the more popular measures in Tuesday’s budget.
Such is the inequitable and eternally divisive nature of housing in Ireland, however, that the introduction of mortgage interest relief of up to €1,250 for about 160,000 mortgage holders was not greeted with universal acclaim.
Many of the more than half a million other mortgage holders not benefiting from the governmental largesse were left asking, “what about us?” Those for whom the prospect of home ownership is remote and people struggling in a dysfunctional rental sector were similarly perplexed by the plan.
Going way back to when that man on the bus exclaimed “I don’t know what a tracker is”, Ireland’s homeowning classes have been split between haves and have-nots.
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The haves had the trackers – mortgages tied to European Central Bank (ECB) interest rates – while the have-nots were on variable and fixed rates set by indigenous banks at levels they reckoned the market could bear, irrespective of whether or not they were equitable or affordable.
For well over a decade the tracker holders were on the pig’s back, paying rates of as low as 0.6 per cent and almost never more than 2 per cent. By contrast, variable and fixed-rate holders were routinely paying over 3 per cent, with some paying more than twice that, for home loans.
Then, in July of last year, things started to turn for tracker holders and it would be hard to exaggerate just how painful that turn has been for many already struggling with a deepening cost-of-living crisis.
A total of 10 ECB rate increases since the summer of 2022 has taken tracker rates up by an eye-watering 4.5 per cent and forced those with mortgage deals they were always told were as precious as gold to pay hundreds of euro more each month to their banks. Few will have any change out of €3,500 when the interest hike impact is spread over a year while many will be substantially worse off than that.
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The harsh reality is these high rates will be with tracker holders for quite some time, with the ECB president Christine Lagarde last month dismissing the prospect of a reversal of its aggressive monetary policy which seeks to bring euro zone inflation under control, no matter the cost to Irish borrowers.
Lagarde said the hikes had “made sufficient contributions ... to returning inflation to target in a timely manner”, adding that the focus was “probably going to move a bit more to the duration”. She stressed that the prospect of a future cut in borrowing costs “was not even a word that we have pronounced”.
As had been widely flagged, Michael McGrath said he was introducing mortgage interest relief and, in his speech, added that he was “acutely conscious” of the impact ECB hikes have had on many households.
He stressed that it was “not possible or desirable for Government to attempt to mitigate in full the impact of increased interest rates” but added that “what we have experienced in the past 14 months is exceptional in the history of monetary union, and 10 successive interest rate increases have put many mortgage holders under considerable pressure.”
It was a well-meaning attempt to help thousands who have been mercilessly punished by ECB policy, but within hours it was being described as “problematic” and “bizarre” by some in the financial sector. Fixed-rate mortgage holders – lacking the luxury of tracker mortgages for the decade or so before the cycle of hikes – were left scratching their heads at the unfairness of it all.
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Daragh Cassidy of price comparison and switching website bonkers.ie says the relief should have been “more targeted and there should have been a requirement to show that you are in some type of financial distress”. He says the focus should have been on those whose loans have been “sold to vulture funds and who cannot move lender and who have seen their rates go as high as 8 per cent or 9 per cent.”
He points out that tracker holders “have enjoyed rock-bottom interest rates for many years [and] could have been on a rate as low as 0.6 per cent since 2014, while everyone else was paying around 3 per cent or 4 per cent. It is only over the past six months – if even – that tracker customers are paying rates that are higher than everyone else.”
He argues the “entire point of a tracker is that your rate can go up or down. Tracker customers had a great run of things for many years. So it just seems a bit bizarre that the Government is rushing to help them the second rates go up.”
It is also worth noting, he says, that until recently Irish mortgage rates were “among the highest, if not the highest, in all of the euro zone. Partly because everyone else had to subsidise the ultra-cheap, near loss-making trackers. Where was the help for other mortgage customers back then?”
He accepts that tracker customers unprepared for an increase in rates would have been shocked by the scale of the hikes but notes that “the average outstanding balance on a tracker is less than €150,000. And most will only have around 10 or 12 years remaining on their loan term. This means most tracker customers’ current mortgage repayment, despite the recent hikes, will be lower than many other mortgage customers’ repayment.”
Cassidy describes the relief as “a classic example of the Government bowing to political pressure at the last minute when there was really no need to do so.”
His was not a lone voice. Rachel McGovern of Brokers Ireland told The Irish Times it “would have been better if we had seen a return to the old mortgage interest relief system for a fixed period of, say, three to five years to assist consumers who will be coming off fixed rates over the next 12-24 months, as they will be caught with increasing rates”.
And then, of course, there were those who will continue to pay the price for not having a tracker who were vocal in their disquiet.
“Back in 2013, when I purchased my original property, I secured a fixed-rate mortgage at a rate of over 5 per cent,” says Daniel O’Sullivan. “During that time, the support for individuals like myself was scant to non-existent. Fast forward to a more recent purchase, I once again opted for a fixed-rate mortgage, this time at 2.85 per cent for a 10-year term as my family began to grow.”
He says measures favouring tracker mortgage holders have left him “feeling as though fixed-rate mortgage holders are being overlooked, if not penalised, for the decisions we made. While tracker mortgages have seemingly enjoyed more favourable terms for years, those of us on fixed rates have navigated through higher interest rates with little to no relief.”
O’Sullivan’s sense of unfairness is echoed by others. “We are on a fixed-rate mortgage since 2009,” says Eoghan Doyle, another homeowner who contacted The Irish Times this week. “We made that choice to be prudent in relation to our mortgage payments. We had the option of cheaper variable rates at the time. It really does feel like a kick in the teeth that the Government is rewarding people for choosing variable rates, essentially gambling that the price would stay low. Now that the prices have risen and they are feeling the financial implication of their decision, it’s very annoying that the gamblers are getting the reward and the people who made safe decisions to manage their finances are being punished.”
He asks why people should “even bother trying” to manage their finances at all “when the Government are essentially bailing you out for a poor decision that has now come back to bite you”.
Ian Carty bought his home in May 2008 – the “worst period to buy,” he suggests.
“We have a 40-year mortgage. How in God’s name can a small group of borrowers ... get rewarded with more protection when they had the choice to go fixed? I also want to add that most of those on tracker mortgages do not have a 40-year mortgage.”
He is on a 2.65 per cent fixed rate until June 2025, “but we suffered the most during the hard times and in the good times”.
For his part, Derek Lawless says he “can’t understand the reasoning behind targeting it at people with tracker mortgages”. He echoes the view of others when adding that tracker holders “had their good fortune and I don’t recall much concern at the time for people on variable or fixed rates.”
Bernard O’Neill points out that the “warnings of rate hikes have been loud and clear for over a year. Those who heeded the advice and fixed now get nothing and those who didn’t get support. Why should you get help when you had an option to protect yourself but ignored it?”
