SINN FÉIN HAS said that homeowners who are stuck on high interest rates with vulture funds need government support now, and that it cannot wait until October’s Budget.

According to the figures released by the Central Bank in May, vulture funds and non-bank lenders account for over 16% of the total Irish mortgage market.

Minister for Finance Michael McGrath said last week that the Government will consider some form of mortgage interest relief for homeowners in the Budget.

It came after the ninth successive interest rate hike by the European Central Bank earlier last week, when it was announced that the main rate for pricing mortgages would increase to 4.25% in a bid to tackle inflation, the highest it has been since May 2001.

“I will need to examine with my colleagues what represents the best use of our resources and how can we target our resources to those that need them the most,” McGrath said.

But Rose Conway-Walsh, Sinn Féin’s public expenditure spokesperson, said that although the commitment was welcome, the Government should have acted “months ago”.

The Mayo TD also told The Journal that the party wants to see all tracker and standard variable rate mortgage accounts held by vulture funds and other non-banks given access to any such scheme.

Her party have actively been calling on the government to support homeowners who are exposed to these ECB rate hikes through the reintroduction of mortgage interest relief. 

Earlier this year, the party put forward a motion in the Dáil that would have seen a temporary and targeted scheme put in place. 

The party would like to see interest relief, equivalent to 30 percent of increased interest costs relative to June 2022, be provided for specific homeowners up to a maximum of €1,500 a year.

According to costings done by Sinn Féin and published in April such a scheme would cost up to €400m.

Homeowners whose mortgages are held by so-called vulture funds are generally more exposed to interest rate shocks than others, with vulture funds quicker to pass on the interest rate rises to variable rate mortgage holders than high street lenders.

Vulture funds emerged in Ireland after the 2008 crash when many ‘non-performing’ mortgages were sold by high street banks to these funds in order to keep them off their balance sheets. 

They have continued to amass a significant share of the Irish mortgage market since then, jumping from 2% at the end of 2009 to 16% currently. 

Many of the customers of such funds are unable to switch their mortgage back to a high-street lender because they were deemed to be ‘non-performing’ in the past or because they availed of some kind of restructuring of their mortgage like going interest-only with their payments for a period.

It’s estimated that some 60,000 people – or 8% of the total market – are in this position and unable to switch to a fixed rate, these people are known as mortgage prisoners.

‘Pressing the brake and accelerator at the same time’

However, there has been opposition to the introduction of any mortgage interest relief scheme. 

Opponents argue that it is unequitable and favours homeowners at a time when renters are significantly more exposed to high housing costs.

Another argument is that such a scheme directly counteracts the ECB’s aim of driving down inflation. 

Writing for the Journal earlier this year, economic lecturer at the University of Limerick Ciarán Casey equated the measure to “pressing the brake and accelerator at the same time”.

“From an economic point of view, the reason the ECB is pushing up interest rates is to reduce inflation. Higher mortgage costs reduce demand across the economy, which eases the upward pressure on prices.

“Rather than allowing the higher rates to address the cost of living crisis quickly, we would be dragging it out, while only providing support for a relatively well-off segment of the population,” Casey wrote.

Others say that some targeted support should be provided by the State regardless, in order to support the segment of people whose mortgages are held by vulture funds but who are unable to switch to a high-street lender.

Mark Coan, the founder of money advice and broker site MoneySherpa.ie, echoed this view, suggesting that a blanket tax relief would “both add to inflation and benefit homeowners over renters”.

“Even after the recent rate increases, rents are still more expensive than mortgage repayments,” Coan said.

He added: “What many don’t realise is that over ninety percent of mortgage holders can still cap their repayments long term at below 4%, by switching to the best rate on the market shielding them from further increases. So they can still take control of the situation by getting in touch with a mortgage broker.

“However 8% of the market, over 60,000, are unable to fix as they are with vulture funds and can’t switch to a new provider. Many of these households are facing rates of over 8% already and intervention is urgently required to help these customers before they slip into arrears.”

First-time buyers

Accross the mortgage market more widely, homeowners who are coming to the end of their fixed-term deals are also feeling the hit of ECB rate rises. 

“Due to pricing and availability of longer term rates, we are a nation of short term fixed-rate mortgage holders and as such the Irish mortgage holder is exposed to interest rate increases,” Martina Hennessy, the CEO of online mortgage broker Doddl told The Journal.

Hennessy gave the example of a first-time buyer who might go for a five-year fixed deal. 

Just 12 months ago AIB had a 5 year fixed-rate available of 2.55%, now this same rate is 4.85%.

On a standard mortgage of €250,000 over 25 years that equates to an increase in repayments of €312 per month or €3,744 per year.

Hennessy’s advice to first-time buyers or people switching is not to take “a wait-and-see approach”.

“Don’t take the first rate offered to you; rates range from 3.8% to 6.65% for all loan-to-values up to 90%. For many mortgage holders their mortgage is their largest financial outgoing, it is so important to get market based advice to keep your repayments as low as possible,” she said.

“The is currently a real window of opportunity to lock down a rate sub 4% before rates rise further. I would not advise taking a wait and see approach as to do so could be a costly strategy.”