Specialist
The government announced a mortgage interest scheme in the last Budget, which comes into effect at the end of January 2024.
The scheme offers savings of up to €1,250 for eligible mortgage holders who experienced an increase in mortgage interest in 2023 than in the previous year.
Qualifying conditions
There are a number of conditions that have to be satisfied in order to qualify from the scheme:
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Your outstanding mortgage debt at the end of 2022 must be between €80,000 – €500,000.
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Local property tax payments must be up to date.
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The property must be compliant with planning regulations.
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You must have experienced an increase in the interest rate paid between 2022 and 2023.
You get a payment of 20% of the difference in interest paid in 2022 and 2023. The maximum difference permitted is €6,250. So if you paid €6,000 in interest in 2022 and €8,400 in interest in 2023, the difference is €2,400 and you can claim back 20% of that i.e.€480.
Helping the wrong people
The scheme is nothing but a populist stunt by the government in trying to appease calls to help out those who have increased interest rates while not addressing real problems that some mortgage holders are suffering.
For 15 years plus, we heard what a great deal people on tracker mortgages were getting. The interest rate on their mortgage was linked to ECB rates. During the Celtic Tiger, rates were very low and went negative after the 2008 recession as the ECB struggled to get EU economies going. This was of great benefit to tracker mortgage holders who paid little interest over all that time, with most of their repayments paying off capital from their outstanding debt. As with any variable rate, you take the good with the bad, so when rates went up, so did their repayments. That is what they signed up for. And they aren’t under any obligation to stick with a tracker rate and have the choice of switching to a fixed rate at any time. Now, people on tracker mortgages are getting a payout after paying almost no interest for decades?
People on fixed rates will not benefit from this scheme either. There are thousands of mortgage holders who didn’t benefit from near zero interest rates and so fixed their rate of their mortgage for 5 – 10 years when they saw rates were increasing. For having this foresight, they cannot receive any payment as their interest rate has not increased.
The real victims
Then we get to the real victims, those who had their mortgages sold to vulture funds. As of November 2023, there are 112,630 mortgages. Not all of which was bad debt but sold in a package by the Irish banks to funds. They were told that the terms of their mortgages would not change and that includes the interest rates charged. But some of these funds only offer variable rates, which have gone up significantly as the ECB have struggled to combat inflation. Some are charging 9%, which is not sustainable. For a mortgage of €300,000 with 20 years remaining at 9% interest, the interest payment is €26,772. These people are not in a position to move to another lender and they never had the option of fixing their interest rate.
What are the government doing about this? Absolutely nothing. They should be taking on the funds that are charging people interest rates in breach of their mortgage contracts. Instead, these victims are being given a token, once off payment that will not make any difference in the grand scheme of things and certainly won’t make the difference between going insolvent or not. The government should have spent the money on lawyers to take on the sharp practices of these funds.
By Steven Barret - Bluewater Financial Planning