Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I will speak about the section first and can respond directly to a number of the points. This section inserts a new section 473(c) into the Taxes Consolidation Act 1997 to provide for mortgage interest tax relief, which I announced on budget day.

As we are all aware, on 14 September the ECB increased its main lending rate by 0.25%. This was the tenth increase in official rates since summer 2022, bringing the ECB’s main lending rate to 4.5%. It is not possible or desirable for the Government to alleviate the full impact of the increased interest rates for all mortgage holders. However, this Government is acutely conscious of the impact of rising interest rates and mortgage costs on many taxpayers. It is for this reason that a temporary one-year mortgage interest tax relief is being introduced.

Mortgage interest tax relief will be available to taxpayers in respect of their principal private residence in the State where the outstanding mortgage balance was between €80,000 and €500,000 on 31 December 2022 and the taxpayer is compliant with local property tax requirements. The tax relief will be available at the standard rate of income tax in respect of the increase in the interest paid between the calendar year 2022 compared with the calendar year 2023. The value of the relief will be equal to the lesser of 20% of the increased interest paid or €1,250, applying on a per property basis, resulting in a maximum relief of €1,250 per property. Pro ratarelief will be applied in circumstances where the interest paid in 2022 or 2023 is less than a full year. Likewise, where there are joint owners of a property, the relief will be proportionally split between them. To claim mortgage interest tax relief, the taxpayer must file a tax return with Revenue. The relief will operate by way of a credit offset against the taxpayer’s income tax liability in 2023. It is anticipated that the relief may be claimed in early 2024. It is estimated that this measure will cost approximately €125 million on a once-off basis and will provide valuable and timely assistance to approximately 208,000 mortgage accounts.

It is my view that an element of targeting is important in the scheme, and I believe Deputy Doherty accepts that some targeting is warranted. That is what I have sought to do in the proposal I brought forward to Government and which was supported.

On the point I made about people with a low loan to value ratio, which would be the case for the vast majority of people with a mortgage of less than €80,000, the benefit of that is that many of them are in a better position to switch their mortgage and to achieve a better rate in what is available currently within the market. Were we to completely remove the €80,000 limit, it would result in a scheme which would be far less targeted and would, of course, have a consequence in increased cost. There is a question of using judgement here. The Deputy correctly makes the point, as I set out in a reply to a parliamentary question, that just under 138,000 accounts may be excluded but some of them will be included because they would be a second mortgage account, which can be aggregated with another mortgage account which the same family would have. As we know, many households have top-up mortgages for different reasons, so aggregation is allowed to meet the €80,000 test. That is an important point to make.

While it is certainly the case that if we take the example of somebody whose mortgage balance was, let us say, between €70,000 and €80,000, so it was close to the limit prior to the interest rate increases in mid-2022, they may have had a monthly repayment depending on how long was left in the term of the loan, and we have modelled different scenarios in that regard, but if we take the example of a mortgage which had approximately 12 years left in 2022, I think we can agree that we are generally talking about tracker mortgage customers, and they have felt the full brunt of the ECB rate increases and no new tracker mortgages have been issued in Ireland for the past 15 years. If we assume that somebody had a mortgage balance of close to €80,000 and had around 12 years left on the mortgage before the interest rate increases kicked in, they could have been paying approximately €600 a month on their mortgage. The Deputy is correct that the increase in the monthly interest could be significant and could be more than €200 for some people in that circumstance, but it is still in the overall context a modest mortgage bill relative to the incomes most households would have. I felt, on balance, that it was appropriate to have targeting in the scheme and that there would be, in the vast majority of cases where the mortgage balance would be below that level, a better capacity to absorb what is a significant increase, but from a much lower base than is the case for very many other mortgage holders. That is why, when I looked at the Central Bank data and the spread of the mortgage balance accounts and I looked at what the impact would be of the full effect, and of course the example will always be offered of the full effect of somebody who is just below the threshold, then I felt it was the correct policy choice to make that there would be targeting on that basis.