Aidan Matthews claimed that deputies would be going back on a pledge to protect lower- and middle-income households from the effects of a goods and services tax if they support Policy & Resources’ latest bid to phase out relief on mortgage interest payments. He has prepared a Budget amendment which, if approved, would maintain the relief at its present level, which saves a couple with a mortgage up to £1,400 a year in tax payments.
‘The recently approved GST package promised robust allowances and mitigations to protect ordinary islanders from a regressive tax, and eroding or removing existing personal protections now would break that promise,’ said Deputy Matthews.
‘No sooner had our GST package been approved than the Budget propositions announced an erosion to a key allowance for local households. Our mortgage relief is already phased out completely for taxpayers with an income over £85,000, meaning the existing relief exclusively protects middle-income taxpayers, not the ultra-wealthy.’
P&R has recommended reducing the interest payments on which tax relief can be claimed from £3,500 per person this year to £2,000 in 2027 and £1,000 in 2028, before eliminating it from 2029.
Treasury lead Deputy Charles Parkinson has already said that he holds a minority view on the senior committee in opposing its attempt to withdraw mortgage interest tax relief.
‘The proposed phased withdrawal of mortgage interest relief reflects P&R’s view that support for home ownership should be more effectively targeted,’ said P&R in the Budget report.
‘Housing has recommended that the phased removal of the relief is reinstated, with that revenue instead used to provide targeted support for first-time buyers.
‘Housing is actively working on several measures designed for first-time buyers and young homeowners with the aim of being able to propose these in the 2028 Budget.’
Deputy Matthews was concerned that P&R had revived its bid to withdraw mortgage interest tax relief a year at least before the presentation of any alternative and more targeted support schemes.
He was also critical of the move just weeks after the States Assembly backed a proposal to investigate extensive reforms of the island’s property tax regime, calling it ‘a premature move that subverts States decisions’, albeit those reforms could take years to agree, if they happen at all.
‘The States has already resolved to find targeted ways to support first-time buyers and overwhelmingly passed an amendment to consider a complete overhaul of our property tax into a progressive, asset-value framework, which has the potential dramatically to help the property market and first-time buyers,’ he said.
‘Removing mortgage relief now breaks the balance we need to design any future system more fairly.’
P&R has estimated that its move to reduce the relief would increase income tax revenue by about £1m. in 2027.
Prices of everyday goods are rising faster in Guernsey than in Jersey and the UK and homeowners are expected to face increasing interest rates over the next 12 months.
Deputy Matthews claimed that phasing out mortgage relief at the same time would cause ‘an unfair squeeze’ on the cost of living locally ‘at the worst possible time’.
‘Restarting this phase out now would expose local homebuyers to a potentially severe repayment shock,’ he said.
‘Removing an interest buffer in an environment of higher interest rates would be a squeeze on working families while the cost of living continues to increase, and for first-time buyers it would make property ownership an even more distant dream.’
Financial markets are anticipating a 1% rise in interest rates by the end of next year. That could be expected to add about £170 a month to a £300,000 repayment mortgage.
Opponents of mortgage interest tax relief claim that it inflates how much homeowners can borrow and therefore increases house purchase prices, putting ownership further out of the reach of youngsters and less-affluent families.