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Topical Issue Debate - Tax Reliefs

Tuesday, 7 February 2012

Dáil Éireann Debate
Vol. 754 No. 3

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Deputy Anne Ferris: Information on Anne Ferris Zoom on Anne Ferris I am pleased to have the opportunity to speak on this issue, as it is one that affects thousands of people around the country, not least in my home constituency of Wicklow, and has recently been highlighted in the media.

These past few years have been difficult for many home owners who are struggling to keep their heads above water. I have been contacted repeatedly by constituents from Bray to Greystones and from Arklow to Baltinglass who are worried about how to cope with mortgage payments they cannot sustain. There are too many in negative equity and too many who bought at the height of the market for fear of being left behind by a market that eventually had a hard landing.

The Government, I know, is doing what it can to help people caught in these untenable situations. I have in past times welcomed such initiatives as were contained in the Keane report, and I look forward to seeing the personal insolvency Bill passed as soon as possible. Indeed, as Vice Chairman of the Joint Committee on Justice, Defence and Equality, I very much look forward to hearing from interested parties with regard to the heads of the Bill, which will come before the committee soon. While I welcome the actions that are being taken by the Government on these important issues, I cannot understand why the recent budgetary measures on mortgage interest relief have not been passed on.

[304]Last week I heard from a young couple in Blessington who are in severe financial difficulty. The man was employed in the construction industry and was earning great money during the boom. The woman is a homemaker who looked after their three young children. They bought a very comfortable home a few years ago to provide for their growing family, when they could afford to pay for it. They paid more than €500,000 for this house, but in today’s market it is not worth even half that amount. He has lost his job and they are struggling to keep up with mortgage repayments. They worry for their future and the future of their children. They told me that anything that would make their lives a little easier would be very welcome, and this included the mortgage interest relief.

I have a number of questions for the Minister. Why has the situation arisen whereby the computer systems of the Revenue Commissioners are not in co-ordination with those of the banks? How is it that the more than 270,000 people who are eligible for this relief are being forced to wait? People are trying to balance their personal budgets on a daily, weekly and monthly basis and they need to have more certainty on issues such as this. Can the Minister confirm when this problem will be resolved? I understand from local media reports that the necessary alterations might not be made until April. Why would there be such an extensive delay? How much will it cost the State to bring the computer systems into line with each other? Are any other payments affected by this lack of communication?

Can the Minister confirm which financial institutions have passed on the interim rate of 25%? Can he say why most customers who have been switched to the interim rate have not been informed of the change by their respective banks?

Minister for Finance (Deputy Michael Noonan): Information on Michael Noonan Zoom on Michael Noonan Mortgage interest relief is available in respect of qualifying interest on a qualifying loan in respect of a qualifying residence. A qualifying loan is a loan used for the purchase, repair, development or improvement of an individual’s principal private residence. The relief is provided at source through financial institutions. This means that the mortgage holders get the benefit of the relief directly from their mortgage providers in the form of reduced monthly repayments which take account of the tax relief.

The cost of mortgage interest relief is a significant burden on the Exchequer. At its peak in 2008 mortgage interest relief cost the Exchequer €705 million. It is estimated that the cost of mortgage interest relief was €457 million in 2011.

It is acknowledged that the early years of a mortgage are the most difficult for mortgage holders. Therefore, since 1993, mortgage interest relief has been focused towards first-time buyers, granting this cohort a higher rate of relief, as it was considered that these mortgage holders were most in need of assistance. In the supplementary budget of 2009, mortgage interest relief was entirely focused on mortgage holders who were in the early years of their mortgages. Mortgage interest relief was ceased for mortgage holders who had already received mortgage interest relief for seven years or more.

In line with the commitment in the programme for Government, mortgage interest relief was increased in budget 2012 to 30% for first-time buyers who purchased their first homes between 2004 and 2008. This measure was intended to help mortgage holders who purchased at the peak of the housing market. The Government also reversed the previous Government’s decision to reduce the rates and ceilings of mortgage interest relief for those purchasing in 2012. The previous rates are maintained at 25% for first-time buyers, reducing to 20% on a sliding scale, and 15% for non-first-time buyers. Anyone currently qualifying for mortgage interest relief or who purchases in 2012 will receive the relief up until the end of 2017. These measures will cost in the region of €55 million per annum. Mortgage interest relief will not be available for new [305]loans from 2013 and it is set to be abolished altogether from 2018. Further technical details will be set out in the Finance Bill to be published later this week.

When any time-limited measure is introduced, there is always pressure from individuals, falling outside the scope of the measure, for it to be extended to them, for example, individuals who purchased in 2003. However, it is necessary to choose a cut-off point as otherwise the measure will become untargeted and very costly. It is evident that house prices increased significantly during the period 2004 to 2008. As the Deputy will appreciate mortgage interest relief is most valuable to mortgage holders in the early years of the mortgage, when the interest makes up most of the repayment.

I am aware that some mortgage holders have pointed out that they are not eligible to benefit from the new measure, despite having purchased in the period, because they have rented out their homes. While these individuals are not eligible for mortgage interest relief, because it is not now their principal private residence, they would be entitled to a 75% mortgage interest tax relief against the rental income from this property.

Mortgage holders who find themselves in difficulty may qualify for mortgage interest supplement. This is a means-tested payment made by the Department of Social Protection to provide short-term support to help pay mortgage holders’ interest repayments.

Finally, it should be noted that the Central Bank’s code of conduct on mortgage arrears governs the relationship between lenders and borrowers who are in arrears and contains a number of important protections for borrowers. It has established a mortgage arrears resolution process for handling cases in arrears and dedicated arrears support units and appeals processes. The code of conduct also provides that a lender must not apply to the courts to commence legal action for the repossession of a borrower’s private residence until every reasonable effort has been made to agree an alternative arrangement with the borrower.

Mortgage interest relief is available only in cases where mortgage interest is being paid. Therefore, I appreciate that the current relief is not going to help those in arrears. As I have mentioned, other solutions are available for this category of mortgage holders.

Deputy Anne Ferris: Information on Anne Ferris Zoom on Anne Ferris I thank the Minister for his reply, but he did not answer any of my questions. I referred to the recent media reports that people who were due to get their mortgage interest relief increased to 30% were not getting it. It has also been highlighted that the computer systems of the Revenue Commissioners and those of the various banks are not talking to each other. We had similar problems in the past but they were resolved.

These people cannot afford to wait month by month. They are now being told by the banks and the Revenue Commissioners that it could take two or three months for the problem to be sorted. People throughout the country are struggling for any little help we can give them. I appreciate that the Minister and this Government have done a great deal to help people who are struggling to pay their mortgages but why is there a delay since the Minister announced this in the budget? It is the beginning of February and we are being told these people will have to wait until April. Why is there a breakdown in communications between the Revenue Commissioners and the banks? What is the cost to the State of getting the two systems to work together?

People’s opinion of the banks is at a very low ebb, and has been for some time. Why have the banks not implemented the mortgage interest relief?

Deputy Michael Noonan: Information on Michael Noonan Zoom on Michael Noonan The Topical Issue debate notified to the Department of Finance was entitled: “To raise the issue of mortgage holders unable to avail of mortgage interest [306]relief.” I replied to that. However, the Deputy raised questions about matters we did not anticipate. I will get the Deputy a full reply to the questions she raised today.

Deputy Anne Ferris: Information on Anne Ferris Zoom on Anne Ferris I appreciate that.

Deputy Michael Noonan: Information on Michael Noonan Zoom on Michael Noonan There was obviously a mismatch between what the Department interpreted the Deputy’s intentions to be and what she actually asked in the debate. I will provide her with a full reply.

Deputy Anne Ferris: Information on Anne Ferris Zoom on Anne Ferris I thank the Minister.

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