Government TDs are being asked not to encourage talk of mortgage interest relief being restored in the wake of the seventh ECB rate hike since last summer.

Ministers are telling them that increased home-loan service costs will be “looked at in the lead-up to the Budget”.

The Department of Finance has anticipated increased interest rates for two years, knowing that inflation was likely to emerge as a problem in the wake of the pandemic.

But the speed of the prices wildfire – fuelled by the Russian invasion of Ukraine – has taken them by surprise.

It is understood more modelling is needed to ensure that the Government response in the autumn will be equitable across the board, meaning for borrowers who are on fixed, variable and tracker loans.

One suggestion being canvassed within Government is a possible time-limited tax credit for home-loan customers linked to the cost-of-living squeeze.

It would be similar to the €500 rental credit introduced last year, reflecting outgoings for accommodation costs. The two credits could even be bundled into one, for tenants and mortgage holders alike.

But Finance Minister Michael McGrath and Public Expenditure Minister Paschal Donohoe do not want to foster public discussion of a “home expenditure credit”, lest it become an expectation to the exclusion of other options.

The hunt is on for a creative solution that could be ended when the inflation squeeze eases pressures on incomes.

The Department of Finance is adamantly opposed to the re-introduction of mortgage interest relief, which it regards as a bolt-on to the system that will prove difficult to remove.

Mandarins on Merrion Street also argue that it is a market distortion and indirect subsidy to banks and building societies, akin to the first-time buyer’s grant which artificially elevated new house prices in years gone by.

Justice Minister Simon Harris commented on rising mortgage interest rates yesterday.

Asked if he supports the reintroduction of mortgage interest relief, he said: “The Government is acutely aware, as the Minister for Finance has said, of the impact of the decisions to increase interest rates on the pressures in relation to a family budget, and in relation to any individual paying a mortgage.

“The Government keeps an open mind on how best to help the people in relation to that.”

He added: “Ireland has, through the Minister of Finance, conveyed our views [to the ECB] in relation to the trends that have seen interest rates go up significantly.

“As we see inflation now beginning to be tamed, with prices beginning to fall in some cases, I think it is important that the ECB reflects quite seriously on the real-life impact of those decisions [on interest rates].”

He was speaking after ECB head Christine Lagarde further spooked borrowers at the announcement of a 0.25pc hike this week by saying the Frankfurt central bank was “on a journey”, implying further increases were on the way.

Mr Harris said: “The Government will, between now and the Budget, continue to look at a variety of ways which can help all people with the cost of living, including mortgage holders.”

Echoing that “variety” comment, a senior Department of Finance official said: “Work is under way on compiling a list of possible approaches and their implications.

“It is the kind of stuff the Tax Strategy Group does every year, devising different things and then costing them.”

Several sources indicated that the basic research would take time and it would not be before autumn that a menu of choices could be offered to Mr McGrath, followed by ­consultation with the party leaders.

Source: Senan Molony and Conor Feehan,
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