Full mortgage relief 'not paid'

The failure of the Revenue Commissioners and the main banks to co-ordinate their computer systems in time has left hundreds of thousands of young mortgage holders paying more than they should for their loans.

A total of 270,566 people are eligible for the increased rate of mortgage interest relief, set at 30 per cent and granted in the last budget. The changes – which were primarily designed to help younger home owners in negative equity – came into effect on January 1st.

However, the State’s main banks, including AIB, Bank of Ireland, Ulster Bank and KBC, have not yet passed on the changes to customers. Delays in updating information technology (IT) systems mean customers may have to wait until April to receive the extra interest relief.

It is estimated the scheme will cost the exchequer €52 million this year and could be worth up to €2,000 a year in tax relief for some couples.

According to AIB and Bank of Ireland, Revenue has told the banks the systems required to make the necessary changes may not be in place until April. The Revenue confirmed yesterday it may take “some months” to complete the required technical changes.

“Revenue and the lenders are updating their ICT systems at present to cater for the new 30 per cent rate and arrangements are currently being made to complete the introduction,” Revenue said in a statement. “This will take some months to do, as it entails technical testing of both Revenue and lender ICT systems to facilitate data information being exchanged.”

December’s budget increased the mortgage interest relief to 30 per cent for first-time buyers who bought their homes between 2004 and 2008, provided they were owner-occupiers.

An interim rate of 25 per cent has been applied to customers in some instances. Revenue said it was in a position to provide this as the 25 per cent rate was already available in the existing system.

A spokeswoman said all the necessary information had been provided to the financial institutions to enable them to implement the interim rate for those eligible account holders.

“The passing on of the interim rate to the account holders is a matter for the financial institutions,” she added.

It is understood not all financial institutions have applied the interim rate. For those customers who have been switched to the interim rate, it is also understood that most have not been informed of the nature of that change by their bank.

Those eligible for the increased relief will be fully refunded once the new rate is finally applied.

Also known as tax relief at source, mortgage interest relief is calculated by the Revenue Commissioners on interest paid on a mortgage. It is paid at source by the mortgage provider.

The changes to the first-time buyer interest relief could save some couples who bought high-priced houses €2,000 this year.

First-time buyers who took out loans in 2007 will gain most from the changes. Single first-time buyers will benefit by up to €1,000, while couples will benefit by €2,000 in 2012 and 2013.

This will take their total maximum relief in 2012 and 2013 to €3,000 for a single person and €6,000 for a couple.

The issue of mortgage debt has been high on the political agenda in recent months.

Last month the Government unveiled a new personal insolvency scheme that included provisions for mortgage debt.

Under the proposed voluntary debt-settlement systems, struggling homeowners may be permitted to restructure their mortgages with their banks outside the formal court insolvency procedure. This would most likely involve reduced mortgage payments or a mortgage holiday over a period.

Almost 13 per cent of private residential mortgages were either more than 90 days in arrears or had been restructured at the end of September, the Central Bank stated.