What do people think about the idea of charging a tax on mortgage interest, instead of paying interest relief.
The idea would be that you:
*Abolish All Mortgage Interest Relief for new Mortages (leave people with existing mortgages alone).
*Abolise Stamp Duty completely.
*Charge a tax based on the amount of interest paid on a mortgage (again leave existing mortgages alone).
A person would then effectively pay their “Stamp Duty” over the life of their mortgage.
It would also be within their power to reduce their tax by carrying less interest.
People would be encouraged to have a bigger deposit, pay down mortgage quicker.
People would be incentivised further to shop around to find the best mortgage deal.
People would be discouraged from having 40 year mortgages, or having Interest Only mortgage for long periods of time.
Government would have an ongoing income rather than large windfalls followed by troughs.
A person who releases equity would expose themselves to further taxation.
Apply it to everyone FTB, Non-FTB, Investors, etc.
The Downside is that it discourages people from borrowing which delays the day when houses start selling
in large numbers at ever growing prices.
Sounds like an unnecessarily complicated way of achieving an outcome (less mortgage debt) which a combination of a return to sensible underwriting policies and the market will accomplish anyway.
Actually the goal is to find an alternative to Stamp Duty.
Stamp Duty is a one off payment when you can least afford it.
It makes the work force less mobile, punishing people who move.
It also creates windfalls for government followed by very little income when houses stop selling.
A property tax could work, but that’s costly and difficult to administer.
A tax based on BER ratings could work.
I suppose to be fair, if I were taxing Mortgage Interest I’d have to tax money spent on Rent too.
We could call it the Dead Money Tax.
I would actually say the opposite - it’s a one-off payment when you can MOST afford it. It’s generally a given that if you can afford a transaction of €X then you can afford a tax of Y% on it.
Annual property taxes and mortgage taxes hit you over the lifetime of ownership/mortgage payment which practically guarantees it’ll hit people when they can’t afford it.
Let’s say 0.2% of your Mortgage Balance, Payable either annualy or
broken up into 12 payments and taken along with your mortgage payment.
The tax would be collected by the bank, just like the Credit Card Tax.
It is true that wealthy people could afford to pay down their mortgages
quicker, thereby paying less tax.
But the evidence suggests that many wealthy people are fine with paying lots of interest
including Interest Only Mortagages, because they see it as a cheap way to borrow and
feel they can make returns that justify it.
Also, this might be a way of getting some tax income from investors who have empty properties.
This tax would be taken at source on their mortgages, regardless of whether houses are rented or not.
A property tax would be simpler. Also, there’s no good reason I can see for people who paid stamp duty to be exempt from a property tax any more than people who pay income tax are not exempt from paying VAT.
I often thought a tax based on mortgage payments, applied judiciously, would actually help us correct the problem we find ourselves in with the Euro. After we lost the ability to set interest rates, they were set for us at an artificially low level by the ECB. This was one of the primary causes of the housing bubble. If this tax had been used properly, it would have raised payments when the economy was in danger of overheating but lowered them when the economy was going down the shitter.
PS I envisioned it working in additional quarter point increments on mortgages e.g. if we thought a 1.5% ECB rate was too low, the tax would set the rate at 1.75% or 2% or whatever you’re having yourself.
PPS. What am I saying? It would never have worked because the effin’ effers would have done it all backwards by lowering rates during a boom and increasing them to strangle the economy during a recession.
Just out of curiosity, how would a property tax be simpler?
What I’m proposing is based on a figure that we already know for every mortgage in the country.
A property tax involves agreeing how we value properties, how we update the property value as the years
go by. etc, etc.
I’m not saying a tax based on the value of a property wouldn’t be fairer, I actually think it would be,
but I don’t think it would be simpler.
As for excluding people who’ve already paid Stamp Duty, my feeling on this is that this tax replaces
stamp duty, so you’d be double taxing those who’ve already paid.
Perhaps now that you mention it, FTB’s who got away without paying stamp duty should be liable for this,
since it would apply to new FTB’s.
I think if we start with the assumption that the idiots will spend money in the worst way and go from there, we won’t be too far from reality. It’s like giving your kid all his college savings on the day he starts college. He’ll be broke within a few months. If you assume he’s an idiot and give him the money bit by bit things will be better for everyone.
If it turns out he wasn’t an idiot, he’ll be no worse off for having been paid in installments.
Well, we do have the National Lottery, so we’re on the right road on that front.
But you might be on to something here.
Look and the BofI building in College Green. When the Parliment sat there and introduced a windows tax they bricked up their own windows to avoid paying it. (or so the story goes)
Perhaps with an idiocy tax the Dail would brick up a few of the idiots.
Can you imagine a tour of Leinster House circa 2022?
And here ladies and gentlemen are the catacombs where all sitting TDs and Senators were
were buried in 2010 after the revolution. It is said that each year on April 10th Donnie Cassidy’s ghost
can be seen walking these hallways saying ‘Now is the perfect time to buy’.
Yep, I can certainly appreciate that. On first glance it doesn’t look good, and maybe even for a few glances
after that.
If I were to present it as letting people to pay their stamp duty over the lifetime of their mortgage
rather than up front, would that make it easier to swallow?
Now if I said you could reduce your stamp duty by paying down your mortgage quicker, would that
make it better still? Or Worse?
Yes I’m messing with semantics a bit here.
Debt is to a certain extent optional. The crazy situation of 40 year mortgages and Interest Only
mortgages on PPR’s was fueled in part by government cheerleading and by a willingness of buyers
to pay almost anything for a house.
A 300K mortgage over 25 years @ 5% involves interest of 226,000 euro
A 300K mortgage over 40 years @ 5% involves interest of 394,000 euro
I’m ignoring mortgage interest relief etc here. Just illustrating the huge difference in cost.
Based on these figures it seems people have an almost endless willingness to pay dead money.
If we could divert some of that dead money from interest to banks and into tax then wouldn’t
that serve a useful purpose.
None of this will happen of course because governments love debt.
They’ll happily take the occasional catastrophic collapse of the economy in
return for the in between years of mad debt fueled spending.
Let me give you another example. I don’t like the government duty on credit cards.
We’re supposed to be embracing a cashless society a knowledge economy yada yada yada.
I would much prefer a small tax on the cc interest you pay. It gives you a way to avoid the
tax. If you pay your bill in full you pay no CC interest therefore no tax.
Would people be better off paying their CC bills in full each month? yes.
Would the economy be better off? Perhaps not, at least not in the short term.
there used to be a ‘mortgage deed’ stamp, which was a stamp payable for any mortgage over 254,000 at the rate of 10 euro per thousand borrowed to a max limit.
this was abolished. taxing interest would not only be unpopular, it would break too many backs to cure anything unless you wanted to cure ‘any shot at prosperity again’ in which case it would work a treat.
Mortgage Interest Relief encouraged people to borrow and has almost bankrupt the country, so
let’s think a bit laterally here.
Stamp Duty is payable in any case so for the most part we’re not talking about taking extra money
out of peoples pockets.
Prosperity will come from houses being cheaper and overall payments (principle, interest and tax) being lower.
In the long run cheaper houses mean everyone will be better off even if they are paying more in tax.
And to be honest I don’t think this policy would be unpopular.
You work in the mortgage business. If you could offer clients the option of paying their stamp duty up front
or over the life of their mortgage, which would be more popular?
Indeed from what I can see a good deal of Stamp Duty is actually borrowed so people are already
making this choice, and are paying not only the Stamp Duty but also the interest on the loan they
used to pay the Stamp Duty.
Normalising the notion of paying the tax over the live of the mortgage would actually save these people
money.
I should say I didn’t expect this to go down well on the pin. It is kind of a bizarre tax because I suspect that it
would be most popular among people who would end up paying most. The kind of people who buy TV’s on hire purchase. No matter how many times you explain the problems with HP, or how much interst actually costs, they still like the low initial payment option.
It does make sense, and would mean people had more freedom financially, but again the government thinks aroudn 10 minutes ahead and is unable to plan beyond tomorrow.
I think it’s the bestest idea ever! Canny ruined everyone’s life, now it would be appropriate for the McSavvy crew to pay their share for the clear-up.
