The Tumultuous History of Mortgage Interest Relief in Ireland
Recent policy changes to mortgage interest relief (MIR) have been well documented by the RLA, who have commissioned several studies into the impact of MIR changes on landlords and the PRS collectively[i].
In autumn 2017 the University of Liverpool[ii] explored, through a desk based review and interviews, changes to MIR in Ireland; a country that has a similar scale of renting to England and Wales and a turbulent history of alterations to taxation in the PRS and wholesale changes to the structures of tenancies, rent and regulation[iii].
In Ireland the PRS has not historically received the same support that owner-occupation has either politically or fiscally. Since 1998 Ireland has experienced four major changes to MIR. Initially concerns about inflation prompted the government to remove MIR altogether as part of wider retreat from subsidising the sector. Then, by 2002, the policy was reversed and MIR was reintroduced at 100%. Ireland was badly hit by the global financial crisis of the mid 2000’s and, in a widespread reduction of government expenditure, in 2009 MIR was reduced to 75%. But, in 2016, in part through the recognition of the scale and significance of the PRS, it was announced that MIR would be incrementally increased annually to 100% by 2021.
Ireland’s tumultuous economic history has driven both the changes to MIR and the operation of the PRS to the extent that the direct impact of the changes to MIR on the sector is unknown. Whilst increasing or decreasing the rate of MIR is a significant indicator of a government’s position on landlords, the large fluctuations in rents and house prices in Ireland have relativized the changes to MIR. One landlord put it this way:
“Changing MIR removed confidence from the market rather than the money. Most people probably didn’t quantify the impact, but it was a psychological impact.”
In addition, the recent overall structure of the PRS in Ireland suggests that altering MIR may have only a small impact on the operation of the sector. A recent trend has been for cash buyers, whose finances are not directly impacted by MIR, to enter the market because of perceptions of poor returns in other investment categories. Furthermore in Ireland estimates suggest as many as one third of landlords could be classified as ‘accidental’[iv], some of whom are locked in to the market and as such their behaviour is constrained as much by circumstances as by a financially optimising response to taxation stimulus.
Whilst changes to MIR signal the attitude of governments towards the PRS, the actual impact of changes is highly contingent upon the composition of landlords and the wider economic circumstances.
[i] See Drs Reeve and Pattison on landlord perceptions of the changes to MIR here: https://research.rla.org.uk/report/landlord-perceptions-of-mortgage-interest-relief/
[ii] The review team comprised Dr Richard Dunning and Dr Phil O’Brien of the University of Liverpool and Dr Tom Moore of the University of Sheffield.
[iii] See Regulation of the PRS in England using lessons from Ireland, T. Moore and R. Dunning, (2017) https://www.jrf.org.uk/report/regulation-private-rented-sector-england-using-lessons-ireland
[iv] See Landlord attitudes to the PRS in Ireland, D. Duffy, C. Kelleher and A. Hughes (2016) http://www.tandfonline.com/doi/full/10.1080/02673037.2016.1236907