Pearse Doherty TD: ‘Time for targeted and temporary mortgage interest relief’

It is time to introduce targeted and temporary mortgage interest relief for struggling borrowers, writes Sinn Féin’s finance spokesperson, Pearse Doherty TD.

The cost-of-living crisis is putting real pressure on household finances. For more than a year, workers and families have been dealing with the impact of high inflation, putting a further strain on disposable incomes at a time when they were already contending with high costs by European standards.

When prices rise, the first course of action households take is to find means to cut their costs, such as switching to a cheaper energy provider, shopping differently or simply cutting back on their level of consumption.

There comes a time when there is little left to cut, and there are items of expenditure which are simply non-negotiable. Many households now find themselves in this position.

A new front has opened in this cost-of-living crisis. As a result of rising interest rates, tens of thousands of mortgage borrowers are seeing their mortgage cost rise by thousands of euro in 2023. A new source of economic anxiety and pressure is bearing down on them.

At the end of 2021, driven by supply chain bottlenecks that were stored up during the global pandemic, inflation soared. Inflation was further fuelled by Russia’s illegal invasion of Ukraine as energy markets were plunged into turmoil, increasing the cost of electricity, gas and oil, and goods heavily dependent on them for their production or transportation.

In response, the European Central Bank (ECB) increased interest rates with the most severe round of rate hikes in decades. Since July 2022, the ECB has increased its main lending rate seven times – it is now 3.75 percentage points higher than at the beginning of summer 2022.

There has been heated discussion regarding this policy response to recent inflation – whether it addresses the contribution of increased profits, whether it can tackle supply side causes, and its impact on European growth and investment. But this discussion does not alter the facts on the ground. There are more than 700,000 outstanding mortgage accounts on primary homes. When the ECB increases its interest rates, these mortgage borrowers are impacted differently.

For those on fixed or standard variable rates, the cost of their repayments depends on the actions of their own banks. To date, retail banks have been slow to increase fixed and variable rates, although there has been some movement in recent months, with further expected in the time ahead.

“There are tens of thousands of borrowers who have felt the full impact of every single rate hike by the ECB.”

There are tens of thousands of borrowers who have felt the full impact of every single rate hike by the ECB. They have received several letters in the post to inform them of their new and high mortgage repayments.

The more than 250,000 borrowers on a tracker rate have been impacted immediately and significantly. The cost of their mortgage has increased sharply at a time when the cost of almost everything else has risen.

There is another cohort of borrowers who are effectively trapped with a credit servicing firm they did not choose or want. These borrowers whose mortgage loans were sold to what are described, often accurately, as ‘vulture funds’.

Unlike the retail banks, many of these funds and credit servicing firms have hiked their rates aggressively, with some borrowers’ interest rates climbing to as high as 8 per cent, with repayments increasing by thousands of euro annually. Many of these households are unable to fix or switch their rates.

The picture is uneven, with borrowers facing interest rate hikes at different speeds and levels. What is clear is that many households have already seen their mortgage repayments rise with further hikes on the way.

“The State can and should support those struggling with rising mortgage costs.”

The Central Bank estimates that 20 per cent of these households will have seen their annual mortgage costs rise by over €4,800 – this was before the most recent rate hike in May 2023.

For many families, the ability to pay the mortgage is just as crucial as the ability to pay rent or an energy bill. The alternative is mortgage arrears, a build-up of debt and financial insecurity. Speaking at a recent hearing of the Finance Committee, the Money Advice and Budgeting Service said: “Interest rate hikes serve as a particularly alarming trend during a cost-of-living crisis and are having disastrous effects”.

Just as households cannot be insulated from the full impact of inflation, they cannot be insulated from the full impact of rising interest rates. Sinn Féin recognises this. Sinn Féin also recognises that no scheme is perfect, but they can be effective. We have seen evidence of this during the pandemic and throughout this cost-of-living crisis.

In this context, the State can and should support those struggling with rising mortgage costs. Sinn Féin has proposed the introduction of a Mortgage Interest Support Scheme – both temporary and targeted.

The relief would operate by absorbing a portion – not all – of borrowers’ increased interest costs. That relief would be 30 percent of the increased interest costs compared to June 2022, capped at a maximum support of €1,500 per household. And it would apply only to primary dwelling homes. For example, where a borrower’s interest costs have increased by €500 per month, they would receive relief of €150 per month.

Sinn Féin has engaged with the Parliamentary Budget Office on this proposal. It is one that would be affordable and effective.

As households continue to struggle under the cost-of-living crisis, we cannot let perfect be the enemy of the good. The Mortgage Interest Support Scheme would provide temporary and targeted relief to those facing spiralling mortgage costs.