Squeezing the middle till it hurts

NEWS that Treasury wants to scrap mortgage interest relief will come as a hammer blow to many struggling homeowners.

NEWS that Treasury wants to scrap mortgage interest relief will come as a hammer blow to many struggling homeowners.

The minister, delivering his first Budget report, justified the decision by saying the relief was a subsidy for paying a mortgage, paid for by taxpayers as a whole.

That may be so, but the people who will be hit hardest are the working population who have scrimped and saved, skipped holidays and gone without in order to get a fingernail on the housing ladder.

They may never have claimed benefits nor received any direct financial support.

As such, this is an attack on low- and middle-income earners who ask for very little – and receive even less – from the States.

And it comes at a time when the States has not fulfilled the promises it made to taxpayers with regard to getting its own finances in order.

What happened to the pledge not to hit islanders in the pocket until the States had delivered the agreed savings under the Financial Transformation Programme?

The minister talks about fairness – or lack thereof – with regard to the current system, as those renting or in social housing don’t benefit from mortgage relief.

While that’s true – although one could argue social housing tenants also benefit from a taxpayer-funded subsidy – mortgage relief is available to anyone who gets on the housing ladder.

The department also suggests the move is likely to lower house prices, helping first-time buyers. His rationale is that mortgage providers lend more because homeowners can afford to pay more, as a result of receiving mortgage relief. Take this away, he argues, and banks will lend less.

The fear is that Treasury’s plan will backfire. It could lead to lenders making it harder for first-time buyers to get a mortgage, while prices are maintained by wealthy cash buyers who would rather invest in bricks and mortar than stocks and shares.

If that happens, large numbers of islanders can give up on the dream of owning their own home.

Comments for: "Squeezing the middle till it hurts"

I don't believe it

Well said.........I think Deputy St Pier has really made a boo boo on this one.

Money saving idea

Clearly the abolition of mortgage interest relief will hit people who have borrowed money to buy houses including me.

My personal situation is compounded by having several children who I would like to send to university. Rather than complain about the increased tuition fees and absence of student grants for my children because despite being heavily committed to mortgage repayments I have begun to investigate the idea of sending my children to another country to study.

Can the Guernsey Press run a story on the costs of University education for islanders? Can you note review the education department and find out whether they can assist islanders making applications to EU and non EU universities outside the UK.

The obvious choices are Ireland because English is spoken there. Maybe the US, Canada, Australia or New Zealand for th same reason. There are also university courses in the EU delivered in English.

The longer term plan however should be for us to negotiate an ability to send island children to French Universities. To this end then we should raise the importance of learning French at schools here so that more of our students would be able to enter University education in France.

We put a lot of effort in the UK south coast Universities, what about the north coast of France universities? We send our lawyers to Caen but not our undergraduates.

The benefits of helping the mortgage payers educate their young would far outweigh the cost of withdrawal of mortgage interest relief. Maybe in these hard economic times we need to be more creative with how we can achieve more with less.

PLP

I am a private tenant and do not own property, neither do I have any desire to. I don't see mortgage tax relief as particularly inequitable although I don't have too much problem reducing the tax relief to £350K. In my opinion people that can afford a mortgage over £350K will be on sufficient income to swallow a small cut in their tax relief.

It is the proposal to abolish relief completely that sticks in my craw as it will hit low to middle income households who have struggled to get on the property ladder, not to mention the young islanders aspiring to own their own homes. It's also worth noting that interest rates are historically low. If rates increase in say 6-7 years time people on variable rate mortgages will get a double whammy of higher interest payments and lower tax relief.

In my opinion the States have a policy decision to make between supporting the prevailing culture of aspiration towards property ownership (for the average working person) or allowing it to decline.

If they want to support it this proposal needs to be either scrapped or amended to a small decrease in relief. In addition serious consideration should be given to limiting the amount of residential property that can be owned by parties who are not the principal residents. Economics isn't my strong hand but surely by limiting the market in this way it will drive first time buyer properties down to a more affordable level. Also, those landlords with large property portfolios will be forced to sell up over a period of time - making more properties available to purchase, also driving prices down. This is probably a bit too radical a solution for this island though and would probably be subject to legal challenge. Rent caps should also be considered (linked to TRP) to make buy to let a less attractive investment.

The alternative is to remove mortgage interest tax relief and maintain a free market - effectively stating that the culture of aspiration towards home ownership for the average islander is coming to an end.