By Conor O’Carroll
The government ignored the advice of the Central Bank on the mortgage-interest relief scheme introduced as part of Budget 2024, according to documents seen by Village Magazine.
The records, which were released under Freedom of Information legislation, include confidential memos sent to the Department of Finance before the Budget where the Central Bank is unequivocal in its criticism of the government’s approach to mortgage-interest relief.
The first memo, dated 25 September, highlights the Central Bank’s opposition to a broad mortgage-interest relief scheme, arguing that “the burden of higher interest rates does not fall evenly” across households.
This, it argues, means “policy responses should focus on assisting households most at risk from cost-of-living pressures” and that it should be “timely, targeted, and sustainably funded”.
A wide mortgage-interest relief package, Central Bank officials advise, would disproportionally reach high-income households and risk “overheating” the economy, which would bring about persistent higher rates of inflation.
As part of Budget 2024, the government announced a mortgage-interest tax-relief scheme for homeowners who have an outstanding mortgage balance of between €80,000 and €500,000 on their primary home.
Using the proposal submitted to them by the Department of Finance, the Central Bank finds that the main beneficiaries of the policy owe less than other borrowers on average and are disproportionately likely to be over 50 years old.
However, the Central Bank advised that such a policy would be regressive. Pulling from a large body of international policy assessments from the OECD, the Central Bank found mortgage-interest relief schemes provide a subsidy to homeowners, who are more likely to have higher incomes than renters or those in social housing.
It also states that studies show mortgage-interest relief schemes raise house prices without increasing homeownership rates.
The Central Bank acknowledges, however, that the higher interest rates are “undoubtedly creating financial difficulties for some households” and suggests that relief through the social welfare system, where means-testing and targeting are more feasible, would have a greater impact in providing support to vulnerable households.
A second memo, dated a week before Budget Day, reiterates the concerns held by the Central Bank with the “inherent regressivity of using taxpayer funds to support mortgage holders in a non-targeted fashion”.
They also caution that the relief may increase the incentive for lenders to raise interest rates, arguing that under such a scenario “the relief would act to support lender profitability without necessarily helping borrowers as intended”.
A spokesperson for the Department of Finance said: “The Government is acutely conscious of the impact of rising interest rates and mortgage costs on many taxpayers…As the Minister for Finance has stated previously, it is not possible or desirable for the Government to alleviate the full impact of the increased interest rates for all mortgage holders”.
“Some mortgage holders, will be in a much stronger position and will have the capacity to absorb the impact of the recent increases in mortgage rates”, itcontinued, “and the Minister believes that the parameters of the relief are appropriate and sufficiently targeted”.
The Department spokesperson did not respond specifically to a question from Village asking why the government did not take the advice of the Central Bank.
Data from the European Central Bank showed interest rates in Ireland were the ninth highest in the Eurozone and coming in above the average rate in September.
Using the proposal submitted to them by the Department of Finance, the Central Bank finds that the main beneficiaries of the policy owe less than other borrowers on average and are disproportionally likely to be over 50 years old.
This, it says, “do not point to the targeting of greatest need for support”, as they “have benefited from lower average interest bills than other borrowers for a decade or more, with a total impact over time significantly exceeding recent changes in interest rate costs”.
Conor Dowd, independent candidate for Galway East at the forthcoming local elections and recipient of the FOI replies told Village: “The government appear to be embracing a strategy rooted in electioneering, by trying to give the impression the mortgage interest relief of Budget 2024 is of benefit to a wide income range”.
Having received the second memo from the Central Bank, officials from the Department of Finance responded with appreciation for its help and said “the advice is very clear”.
