Colm Brophy (Dublin South West, Fine Gael)
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189. To ask the Minister for Finance if the mortgage interest relief will be retained beyond 2017 on a tapered basis, in view of the fact that a substantial number of homeowners are still in negative equity. [9844/17]

Michael Noonan (Limerick City, Fine Gael)
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The Deputy will be aware that there is a commitment in the Programme for a Partnership Government to retain mortgage interest relief (MIR) beyond the current end date on a tapered basis.  At present, Section 244 of the Taxes Consolidation Act 1997 provides for tax relief in respect of interest paid on qualifying home loans taken out on or after 1 January 2004 and on or before 31 December 2012, with relief being available until 31 December 2017.  Mortgage interest relief was abolished for homes purchased on or after 1 January 2013. As the legislation currently provides for the relief to continue until the end of December 2017, it was not necessary to include legislation in Finance Bill 2016 to provide for the tapered extension of the relief.  However in my Budget speech in October last I confirmed my intention to extend MIR beyond the current end date on a tapered basis to 2020 and that the details of the extension will be set out in Budget 2018.

Mortgage interest relief operates as a tax relief at source, meaning that the relief is deducted by the bank from the mortgage payment due, and the homeowner pays only the net amount due. Therefore existing recipients of the relief could face a significant increase in their monthly mortgage payments when the tax relief at source is withdrawn (all other factors being equal). The purpose of the proposed tapered extension is to avoid a sudden significant increase in mortgage repayments for those losing the relief, but instead to withdraw the relief gradually, allowing the mortgage holder time to adjust to the change in mortgage repayments.

The Deputy will also be aware that, on foot of a change I introduced in Budget 2012, first time buyers who bought at the height of the property boom between 2004 and 2008 receive a rate of mortgage interest relief of 30%. This compares favourably to the rates available to other remaining recipients of MIR which reduce on a gradual basis from 25% in years 1 and 2 of the mortgage to 15% in the 8th and subsequent years.

Single individuals and married couples/civil partners that are first-time buyers qualify for mortgage interest relief for the first seven tax years of their mortgage up to a maximum ceiling of €10,000 and €20,000 respectively. Thereafter relief is restricted to ceilings of €3,000 and €6,000 respectively.

The system of mortgage interest relief is designed and targeted in such a way that the relief is of greater value in the early years of a qualifying loan, when interest represents a greater proportion of the repayment.  Mortgage interest relief is of lesser value to individuals whose repayments are made up of a higher proportion of principal than interest, as would generally be the case for those who move in to the eighth and subsequent years of their loans. It is worth noting that the application of the annual ceilings on interest qualifying for relief, and the stepped reduction in the rate of relief available to remaining recipients other than those who purchased between 2004 and 2008, already work to reduce the relief in a gradual manner.

A review of policy considerations and potential costs of an extension of mortgage interest relief was contained in the Income Tax Reform Plan published by my Department in July last year and may be of interest to the Deputy. The plan is available at: www.finance.gov.ie/sites/default/files/Income%20Tax%20Reform%20Plan-FINAL_0.pdf.

I am conscious of the challenges that individuals continue to face notwithstanding the improving economic conditions. In relation to negative equity, I would point out that the position is improving with the number of primary dwelling home mortgages in negative equity as of December 2015 having reduced to 15 per cent, a decline of 5 per cent since December 2014.