IT HAS UNFORTUNATELY reached the point where Ireland has assembled a veritable rogues’ gallery of highly questionable housing policies.

We’ve had the glacial rollout of ironically named rapid-build housing.

We’ve also had the Help to Buy scheme, which continues to cost taxpayers hundreds of millions every year despite repeatedly being found to be largely useless at best.

And we’ve even had landlord tax relief, politely described by one expert as “maybe the stupidest tax relief of recent times”.

But perhaps the most futile policy of all is mortgage interest relief, which was introduced as a one-off measure last year.

Temporary policy policies often have a funny way of becoming permanent in Ireland.

Look no further than the aforementioned Help to Buy scheme, which was initially to run between 2017 and 2019.

With Budget 2025 on the horizon, it will soon be crunch time for mortgage interest relief and whether it will remain a one-time measure as originally intended.

First it’s worth a quick recap of the terms of how mortgage interest relief works.

The goal of the policy is in the name – essentially, the Government gives money to mortgage holders, refunding part of the interest paid on mortgage loans.

The measure applies to homeowners who had an outstanding balance on their primary home between €80,000 and €500,000 as of the end of 2023.

Those who qualify will get a payment worth up to 20% of the interest they paid in 2023, once it was higher than they paid in 2022. The value is capped at €1,250.

It’s estimated that about 165,000 mortgage holders will benefit from the measure, at a cost of about €125 million to the State.

The relief was introduced on the back of soaring interest rates – the European Central Bank hiked rates 10 times up to the end of 2023 – in a a bid to slow down inflation, which had surged following an energy price shock caused by Russia’s invasion of Ukraine.

The average interest rate on new Irish mortgage agreements at the end of October 2023 was 4.3%, a significant increase on the 2.6% recorded in October 2022.

However, Central Bank research found that price hikes from Irish lenders were more modest compared to other banks across Europe.

This was down to a variety of reasons, such as the reluctance of Irish savers to move their money to other lenders, allowing banks to keep their deposit rates at rock-bottom levels.

Probably the bigger reason was that Irish mortgage rates were already high to begin with: Ireland was regularly near the top of the EU table for most expensive mortgage rates, even before the hikes began.

This gave mainstream lenders some room to hold off on price hikes, in a way which helpfully undercut non-bank lenders who had been muscling in on the mortgage market, while also leaving enough space to make massive profits.

Inevitable

Although the rise was more modest compared to other parts of Europe, mortgages still went up.

Coming at the same time as high inflation, it was perhaps inevitable that there would be calls to ease the pain for homeowners.

That’s exactly what Sinn Féin did, pressuring the Government into introducing the relief scheme in the last budget.

On the face of it, the move to bring back mortgage interest relief seemed reasonable.

Homeowners had to fork out more for their borrowing at a time when the country was grappling with a severe cost-of-living crisis.

Perhaps the strongest argument in favour of the scheme was that it would help homeowners whose loans were owned by investment funds, many of whom had no way of switching their mortgage holder.

Many investment funds increased rates by much more than mainstream banks, and those customers who had their loans owned by them had little choice but to pay up.

But this is where problems have emerged.

Others in that group include tracker customers, who already enjoyed rock-bottom rates for years when other mortgage holders were paying higher prices.

Mortgage interest relief was not targeted at that bracket of people, who make up about 37,000 of the 165,000 or so who could benefit from the scheme.

The vast majority of beneficiaries were those who recently moved onto fixed rates, who had the option of locking in prices at 2% or 3%. They also had the option of moving to lower rate mortgages.

There is also a broader argument that mortgage interest relief is just a bad policy.

It’s opposed by most economists for a variety of reasons, but there are two big ones that tend to be put forward.

The first is that it gives money to homeowners, who overwhelmingly tend to be a lot better off than renters, and so are far less likely to need support from the taxpayer.

And the second is that rates were raised to make borrowing more expensive and help bring down inflation – but mortgage interest relief effectively makes borrowing cheaper, meaning that Irish policy was acting against European policy.

Another extension?

Although the Government has insisted that the measure would stay in place for just one year, there are already signs that it will come under pressure to green light another extension.

Sinn Féin has highlighted how “just” €25 million has been claimed under the scheme so far, which the party says is because of to too much red tape.

It could also relate to the fact that applications only opened in February and the figures only went to the end of June, meaning it is relatively early days.

PAYE taxpayers applying to the scheme also have to complete an income tax return for 2023, many of which normally filed around November.

However, Sinn Féin has insisted that the scheme should change so that it “works” and has said it has “no problem taking it over”, implying it would like the scheme to be retained.

The timing is especially sensitive given that the upcoming budget will be the last one before a general election, which has to be held by March 2025 at the latest.

Withdrawing the measure would give opposition politicians an open goal in claiming that the Government is not supporting homeowners.

It is therefore all too easy to imagine a scenario where the scheme is extended for “just one more year” to avoid a withdrawal before the election.

This would not be so bad if it were useful.

But to go back to what many have argued before, mortgage interest relief is basically a transfer of taxpayer funds to those who are wealthier in society.

The policy was a feature of Irish housing for years before finally being abolished in 2013.

The concern is that if it is extended for another year, it could become another version of Help to Buy – a “temporary” housing “support” which ends up becoming embedded in Ireland’s housing system.

Irish housing is dysfunctional enough already; this is one more bad policy which doesn’t need to stick around.