Paschal Donohoe (Dublin Central, Fine Gael)
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I refer to an e-mail I received from a constituent which is representative of a common situation. The constituent bought a two-bedroomed apartment for €420,000 in 2006. A first child was born in 2009 and a second child was born in 2011. This apartment is now valued at €169,000. This is a stark illustration of the burden that negative equity places on many people. Despite the difficulty of being in negative equity, this couple can still pay the mortgage with difficulty. They could pay another mortgage but they remain living in an apartment that is far too small for the needs of their family. They are in a trap. They cannot sell the apartment, nor do they wish to do so. However, if they decide to rent out the apartment in order to cover the cost of the mortgage and then rent or buy a home, either a house or a large apartment for their family, a number of things will happen. If they buy a second property, the Revenue Commissioners will classify the first property as an investment property. They will lose tax relief at source on the original property. The second property is then regarded as a second home and is liable to the second-home tax. They can afford to cover the rent on a second house or a larger property but they are then classified as investors by the tax system while they are anything but that. They are just looking to find a home for their family. This is a stark example of the difficulty being created by the tax system for people already bearing a very significant burden of a mortgage and negative equity. I ask the Minister of State what can be done to create imaginative arrangements to accommodate those who are looking to change home.

While they would be able to bear the cost, the tax system acts as a barrier to taking this step. I ask the Minister of State to give some thought to addressing this issue creatively to accommodate people who can afford to move to homes of an appropriate size and with appropriate facilities to raise their families but require some support from the system if they are to do so.

Brian Hayes (Dublin South West, Fine Gael)
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I thank Deputy Donohue for raising this matter on which the Minister for Finance has asked me to respond. The Deputy is correct that to qualify for mortgage interest relief an applicant must live in the property and may not rent it out. Those in receipt of mortgage interest relief who choose to rent out a property immediately lose the relief. I would be interested to learn when the mortgages to which the Deputy refers were taken out. As he will be aware, the maximum period for which one can obtain mortgage interest relief is now seven years. If, in the cases to which the Deputy refers, the individuals took out a mortgage five years ago, they will receive mortgage interest relief for only two more years.

As the Deputy is also aware, in last year's budget the Government introduced an increase in support through mortgage interest relief to help people who purchased a property between 2004 and 2008. Perhaps the Deputy will clarify when the persons to whom he refers purchased their homes. If, for instance, they purchased their homes five years ago, they will only receive mortgage interest relief for a further two years and it would not make a significant difference if they were to lose it at this stage. If they purchased their homes between 2004 and 2008, I presume they will be in receipt of the maximum relief of 30%, which was introduced by the Minister for Finance last year.

I will skirt through the written reply provided. Mortgage holders who are in difficulty with their mortgage obligations in respect of their primary residence have significant protections available to them under the Central Bank's code of conduct on mortgage arrears. The banks have signed up and are obliged to enforce the code of conduct. In addition, in October 2012 the Government published the report of the interdepartmental working group on mortgage arrears, known as the Keane report.

The Government remains committed to progress measures to assist genuine mortgage holders in difficulty and the Government committee on mortgage arrears, which is chaired by the Taoiseach, continues to meet. It is the intention of Government to ensure that those mortgage holders in genuine difficulty will receive appropriate assistance and a high priority has been assigned by Government to the implementation of this broad range of measures to assist those experiencing difficulty on their mortgage across the relevant Departments and agencies.

With specific reference to mortgage interest relief, as the Deputy will be aware, the relief is available at varying rates and subject to certain ceilings in respect of interest paid by an individual on a loan used by that individual for the purchase, repair, development or improvement of his or her sole or main residence. The Government is committed to helping address the particular problems faced by those who bought homes at the height of the property boom between 2004 and 2008. Mortgage holders qualify for the increased rate of 30% if they made their first mortgage interest payment in the period from 2004 to 2008.

Mortgage interest relief for principal private residences will no longer be available to house purchasers who purchase after the end of 2012 and will be fully abolished from 2018. This means the loan will have to be drawn down by 31 December 2012 to qualify for this relief.

Given the current budgetary constraints, the Minister for Finance has no plans to widen the scope of the relief to cater for people who are renting out their property, as the measure would become less targeted and very costly. However, it should be noted that an individual who rents out his or her residential property may be allowed a deduction, subject to certain conditions, in computing the taxable rents from that letting of 75% of the interest accruing on money borrowed to purchase, improve or repair that property. In arriving at the profit rent for tax purposes, 75% of the interest paid may be set against the gross rent. However, it should also be noted that where the landlord has not complied with the registration requirements of the Private Residential Tenancies Board in relation to all tenancies that existed in the particular premises for the relevant tax years, none of the interest paid may be set against the gross amount.

As the Deputy will appreciate, the Minister for Finance receives numerous requests for the introduction of new tax reliefs and the extension of existing reliefs every year. He will also appreciate that the Minister must be mindful of the public finances and the many demands on the Exchequer. Tax reliefs, no matter how worthwhile in themselves, reduce the tax base and make general reform of the tax system that much more difficult.

Paschal Donohoe (Dublin Central, Fine Gael)
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What are we to do? We have young people, married and unmarried, with young children who want to have more children but are living in one or two bedroom apartments they purchased at the height of the property boom. The tax code makes it difficult for them to rent accommodation appropriate to the size of their family. While I understand the pressure on the public finances, this is none the less a large group of people who find themselves in a horribly difficult position.

The Minister of State indicated that widening the scope of the current relief would make the measure "less targeted and very costly". While I accept it would be costly, I do not accept it would be less targeted because I am asking that it be targeted at a specific group, namely, families who wish to move out of apartment dwellings but cannot do so without being classified as investors. I have raised this issue elsewhere and I ask that the Minister give it careful consideration.

Brian Hayes (Dublin South West, Fine Gael)
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I thank Deputy Donohoe for raising this significant issue and highlighting the circumstances in which people have been caught which prevents them from selling their property. To answer his question on what can be done, the banks would have ultimately to write down the loss in circumstances of catastrophic non-failure, but in the cases in question the individuals are meeting their obligations and paying their way. As a consequence, they do not fall within the group for which the Keane report proposes to provide protection.

Questions would also need to be posed about any measure taken to address this matter. For example, how many children or bedrooms would someone need to have to qualify under any new scheme? What would be required to make a scheme sufficiently targeted so as to help the group in question? Ultimately, however, someone would have to write off the loss.

As the Deputy knows, the Central Bank is in discussions with the banks about a range of new products which they must make available as part of the implementation of the recommendations of the Keane report. This issue should form part of a subset of these recommendations in order that we can unlock the potential of the people in question and allow them to move on to larger properties to meet the needs of their growing families. The solution may be for banks to show a little imagination and allow them, for example, to bring their debt or a portion thereof with them if they move home. In this regard, the Government has already proposed split and renting mortgages.

The Minister for Finance has indicated that it is difficult to confine the scope of measures taken on the tax side. However, we have an open mind on this issue and if a serious proposal were developed, I would bring it to the attention of the Minister. From what I have read about this matter, the solution lies with the banks encouraging people to move on. In the United Kingdom, people in negative equity have been able to take their mortgage with them in circumstances where they want to move elsewhere in the country and purchase another property. Perhaps this is the type of solution we should consider, rather than one that is tax driven. I concur with the Deputy that this is an important issue. We have an open mind on how to solve it.