AS PART OF the ‘giveaway’ Budget 2024 all residential mortgage holders who owe between €80,000 and €500,000 are eligible to get 20% of the increase in their repayments from ‘22 to ‘23 back as tax relief.
The average ECB lending interest rate in 2022 was 0.64%, but this has shot up to an average of 3.83% in 2023 assuming there are no more hikes before the year is out.
Those on fixed rates or variable rates with the high street banks have seen very little of these increases passed onto them so far, but tracker mortgage customers with all lenders and variable rate customers with non-bank lenders have been hit hard.
A tracker mortgage has risen from 1.79% on average in 2022 to 4.98% on average in 2023, while some variable mortgage holders with non-bank lenders are now at rates of 9% or more.
It’s these 160,000 or so households that the budgeted relief pot of €125 million targeted at, reducing the average year-on-year increase in mortgage repayments of just over €2,000 by around €400 each.
On the face of it, that approach may seem fair enough, as they are the mortgage holders facing the largest rising repayments, but there are two very different groups being lumped together here.
The first group are the 123,000 mortgage holders who had the option to fix their mortgages at rates between 2-3% for the last two years as rates rose, but chose not to.
The second group are the 37,000 mortgage holders with vulture funds, who cannot fix as these funds don’t offer fixed rates. These households are often known as ‘mortgage prisoners’ as other lenders won’t take on their loans.
Almost by definition, the first group can afford to cover the rising repayments as they didn’t need to switch mortgage to lower fixed rates to keep repayments down and so haven’t. Most of these mortgage holders are financially stable enough to afford an extra couple of grand a year. You could say they’re simply taking a bet on rates coming back down again so they can benefit once again from the rock-bottom rates they have been enjoying since 2008.
The second group though face a very different reality. Many of these customers had financial difficulties in the past and were abandoned by the high street lenders when they were sold to vulture funds, but have since managed to escape being in arrears. Now, unable to do anything to control their rising repayments, these households are teetering on the brink of mortgage arrears once again.
Budget 2024’s tax relief is a once off measure, it does not compensate for the increases in repayments seen between 2021 and 2022. It will not compensate for increased repayments in 2024, which are expected to remain around the current high levels according to the current consensus on ECB interest rates.
These households are therefore staring down the barrel of an increase of €5,000 in repayments over the three years on average, with many facing even higher rates and no option to fix.
Set against this an average tax refund of just over €400 each, although better than nothing, seems inadequate at best.
I’ve spoken to many of these customers in the last two years as a result of our mortgage prisoner campaign, which seeks to change lender rules to allow mortgage prisoners to access the retail rates available to the rest of the market. The hardship, stress and frustration they feel, due to a situation they find themselves in, due to no fault of their own, is painful.
The government has missed a real opportunity here, if the €125 million set aside for this relief had been targeted at only those who really needed it, the mortgage prisoners, they could have wiped out almost two years of repayment increases for these customers. This would have bought these households much-needed time to seek out the solutions they need to stop them from falling further into distress. As it is, the government measures appear too little, too late.
Mark Coan is founder of the online moneyguide moneysherpa.ie.
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