The Government is considering including a “very targeted” measure in the Budget to help households who find themselves in extreme financial distress because of the rapid spike in mortgage interest rates this year, Taoiseach Leo Varadkar has confirmed.
In so doing, Mr Varadkar specifically ruled out a Sinn Féin proposal of a temporary mortgage interest relief scheme on the grounds that it might actually lead to an increase in house prices.
“We haven’t ruled out not doing anything at all on mortgage interest relief. But anything we do would be very targeted to people who are in financial distress, who are struggling to pay their mortgage and may potentially lose their home, because nobody wants that to happen.”
Turning to the Sinn Féin proposal, Mr Varadkar said: “The difficulty with an across-the-board mortgage interest relief is the when it was there before it actually had the effect of increasing house prices and increasing the amount of mortgages people would get from their banks, and therefore increasing their debt.
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“There is a risk and so anything we do would be very targeted to those who needed it the most.”
Mr Varadkar was speaking in the village of Glencorrib in South Mayo during a visit to Galway and Mayo.
Asked about the latest increase in interest rates, he said Ireland and Europe had enjoyed a very long period of low interest rates.
“I think we’re probably seeing interest rates resetting to a level of between 3 per cent and 5 per cent. That would have been historically around the average at least before we joined the euro. “[The increase] is going to have an impact. It’s going to make it more expensive for people to pay their mortgages and will also impact on the cost of housing. It may even help the cost of housing to level off or fall back.”
He said any measures considered by the Government for the Budget would be confined to people who are facing financial distress, who are struggling to pay their mortgage, and face losing their home.
He said the Government had to be careful not to raise expectations. “We had across-the-board mortgage interest relief before and the effect was to increase house prices and to increase the amount of debt people are able to take on and that’s not something we want to repeat.
“So anything would be very targeted to people facing financial distress. There are things people can do already which is important to bear in mind. If you have equity in the home, you can switch and that’s one way you could potentially reduce your mortgage payments.
“Another option is to go interest only. I would certainly encourage people to engage with their lender, or if that doesn’t work to engage with the Government service, which is called Abhaile, which helps people who are facing mortgage arrears.”
Responding to a question that it would be very difficult to define and tailor a scheme and to determine the threshold above which people are in distress he said: “Ultimately anything you do that’s universal and across-the-board is easy to design but extremely expensive. Anything you do that’s targeted is not so expensive, but can be difficult to design and that’s the kind of work that we need to do between now and now on Budget Day. That is the work that is under way.”
