Taoiseach says higher interest rates are ‘normal’ and downplays chances of tax relief after ECB rate hike

Higher mortgage interest rates are “normal” while the reintroduction of a tax relief on mortgages would be “complicated”, Taoiseach Leo Varadkar has said.

His comments will dampen expectations of significant supports in Budget 2024 for mortgage holders, following the eighth increase in European Central Bank (ECB) rates.

The increase in the ECB’s interest rates to their highest level in more than 20 years will heap pressure on tens of thousands of borrowers, with more financial pain coming as ECB president Christine Lagarde all but confirmed another rate hike next month.

Speaking in Jersey, where he is attending the British Irish Council, Mr Varadkar said that many of those experiencing rate increases would have been on very low rates previously.

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And asked about the potential reintroduction of a tax relief on mortgages, he said: “In terms of any interest relief in the budget, that’s something we’ll have to consider between now and then. It is certainly something that’s complicated to do. And it is only fair to point out that a lot of people who are now suffering from the increased effects of high interest rates would have been on very low interest rates for a long period of time.”

He said that interest rates of between three and five per cent are “actually normal” and “close to the historical average”.

“So people who suggest for example, a temporary measure to help people with higher interest rates, they really need to ask the question, how temporary would it be? Because we had a very long period for many years of very low interest rates and things are now resetting to what would be close to the average of somewhere between three and five per cent,” the Fine Gael leader said.

He acknowledged that “for some people, particularly on tracker mortgages, that means hundreds of extra euros on mortgage payments every month and that’s really biting a lot of people and I understand that. It is important to say that the ECB is independent in its decisions. It is increasing interest rates for a reason, which is to bring inflation under control and to restore price stability, and if that can be achieved it benefits everyone.”

It comes after Minister for Housing Darragh O’Brien said the reintroduction of a tax relief on mortgages does need to be considered.

“There’s no question that there are families and individuals suffering because of the mortgage rate increases but it can’t be done on an ad hoc basis, as you’ve suggested to deal with nearly every problem,” he said earlier in the week.

The Taoiseach was also asked about whether he was considering hiking the vacant property homes tax to bolster supply, after the Social Democrats said the Government’s vacant homes equated to 0.3 per cent and was “so low it is actually laughable”.

Mr Varadkar said this was not the case, and that he would wait to see how effective the existing plans are first.

“People say it is 0.3 per cent but that is not the case. It is three times the local property tax. That might work out at 0.3% of the median value of a certain house in certain circumstances but it is not 0.3%.

“It is new tax only coming in this year so we will see how effective it is. One that it is evident from the census and from other research is that while there are a lot of vacant homes on any one night in Ireland, they are often vacant for a very good reason.”