Mortgage relief on agenda for budget after ECB rates rise again

The reintroduction of mortgage interest relief will form part of negotiations on the budget within Government over the coming months, Taoiseach Leo Varadkar confirmed on Thursday, after the European Central Bank (ECB) raised interest rates for the seventh time since last July.

The ECB pushed rates up by another quarter of a percentage point, bringing them to 3.75 per cent and heaping pressure on mortgage holders who have seen their monthly repayments rocket since last year.

Mr Varadkar declined to make any promises on the reintroduction of the relief, pledging only that the measure would be “under consideration”, but political sources concede that the pressure to offer some relief to mortgage holders will be intense.

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The Department of Finance is understood to have pushed back against the idea last year but the demands, from inside and outside Government, are likely to be stronger this year.

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One senior Government figure who will be involved in the decision said mortgage interest rates would still be a huge issue by the time of the budget in October, with further ECB rate rises between now and then expected.

Mortgage interest relief was phased out between 2009 and 2020 in the wake of the financial crisis. At its height, it was costing the exchequer more than €700 million a year.

Last year, officials in the Department of Finance calculated that if the scheme was reintroduced, it would cost the exchequer about €500 million a year. Officials also pointed out that the scheme meant those with the most valuable properties had most to gain.

But the Taoiseach’s intervention – while he was careful to insist that it was only one of a number of options for the budget – will put the potential move firmly on the political agenda.

Mr Varadkar said he didn’t “want to be misinterpreted as saying that under consideration means a promise that it will happen”.

“I can’t promise that at this stage,” he added.

Mr Varadkar also suggested that any scheme would have to be applicable to all mortgage holders, and not just to holders of tracker mortgages, who have been most immediately affected by the rate hikes.

“I know it would be nice to do something that is really targeted,” he said, “but bear in mind that people who are really feeling the brunt of the mortgage interest increases are generally people who have been on trackers, who for a prolonged period had very low interest rates and are only now, in many cases, paying interest rates that other people were paying for ages.

“So just doing something for one group might not be fair. So we will have to figure out what is possible.”

The rate rises have meant that many people are paying thousands of euros a year more on their mortgages since last year. A person with a tracker mortgage of €200,000 on a margin of 1 per cent above the ECB rate and a 20-year repayment period will see monthly repayments climb by €37 to €1,292 from next month, according to independent calculations.

That is €373 more each month than before rate rises began, an annual total of close to €4,500 a year.

But rate rises have largely not been passed on to savers.

On Thursday AIB chief executive Colin Hunt defended the bank’s decision not to pass on the full extent of the recent string of interest rate increases to savers, noting that it had also held back from passing on the full extent of these hikes to mortgage borrowers.

Sinn Féin piled on the political pressure in the Dáil where finance spokesman Pearse Doherty accused the Government of “washing its hands and abandoning” mortgage holders.