The latest in a long line of attempts to cut the relief was thwarted again yesterday when the Assembly backed Aidan Matthews’ amendment to retain it at £3,500 per person.
The amended budget proposal would leave a working couple paying mortgage interest of £7,000 or more each year with an income tax bill £600 lower in 2027 than under Policy & Resources’ original recommendation.
Retaining the relief will face a final vote at the end of general debate on the Budget later this week, but the margin of victory for Deputy Matthews’ amendment, which was carried 25-14, made a later reversal highly unlikely.
Several deputies who backed the amendment said they did not necessarily oppose withdrawing mortgage tax relief in principle but argued against doing it in the middle of a cost-of-living crisis and while the Housing Committee was still to come up with alternative schemes to assist first-time buyers.
Deputy Matthews’ opening speech on his amendment was widely praised as arguably the best he had made since entering the Assembly six years ago.
‘Many existing mortgage holders will be waiting nervously for the news to see if we really do end this relief, as it will directly affect the household budgets of hard-working families who have bought their own home. Have no doubt – this is no minor measure which would slip through unnoticed,’ he said.
He argued that the relief was already unavailable to the highest earners because all tax allowances were phased out for individuals with income exceeding £85,000.
‘Interest rates on mortgage products are approaching a new high-water mark... and the proposed ending of the relief comes on top of the decision by the States to implement a goods and services tax,’ he said.
‘I was stunned that immediately after the Assembly voted to approve a GST, persuaded by the arguments that the regressive nature of the tax would be counteracted by mitigations in the form of allowances to protect those on low and middle incomes, the budget proposed to remove some allowances from middle-income households.’
Members of the Housing Committee told the States that they were working up new schemes to assist first-time buyers, and P&R said it would prefer to fund those rather than mortgage tax relief. But the same thing had been said in last year’s Budget debate, when the withdrawal of mortgage tax relief was also defeated.
‘Measures which would make it immediately easier to buy a home are likely to have an inflationary effect when demand is so high and therefore part of the reason why we are not bringing detailed proposals right now is because we think there is more pressing work to be done on the housing [building] pipeline if we want these measures to have a tangible effect,’ said Housing member Deputy Rhona Humphreys.
She said Housing wanted to introduce a tax-free savings scheme to help people build up funds for a deposit and was also looking at ways of reducing the burden of document duty on first-time buyers.
Deputies Chris Blin and Andy Sloan were among those who did not want to see mortgage tax relief withdrawn ahead of the introduction of Housing’s alternative schemes.
Deputy Jayne Ozanne said she had mixed views about the amendment. She believed that mortgage tax relief was unfair on tenants, on average paying more in rent than homeowners in repayments, but she was concerned that many families would find their household budgets squeezed if the relief was withdrawn now.
Deputy Gavin St Pier partially agreed and claimed that the best time to withdraw the relief would have been 10 years earlier, when he proposed it as treasury lead, at a time of much lower interest rates.
The seconder of Deputy Matthews’ amendment, Deputy David Goy, pointed out that in recent decades the average purchase price of a home had increased from four times to 14 times average earnings.
P&R’s attempt to resume the withdrawal of mortgage tax relief, which had been started years earlier and then paused, was the only Budget proposition not supported by all members of the senior committee, as treasury lead Deputy Charles Parkinson openly opposed the move.
Deputy Matthews argued against claims that withdrawing the relief would take some of the heat out of the housing market.
‘When the UK abolished their version of mortgage interest relief in 2000, the economic narrative promised that it would cool the market and make housing fairer. Instead, it triggered an unprecedented disaster, it priced out owner-occupiers and catalysed an explosion in the buy-to-let market,’ he said.
‘P&R is already under resolution to consider changes to mortgage interest relief, including other forms of tax relief, with Housing, but clearly this work has not been completed or indeed started.
‘I urge members to take a considered look at housing tax policy and not a knee-jerk rehashing of an old policy which is unsuited to current times and our recent knowledge of how housing tax policy works.’
You need to be logged in to comment.