A new approach to mortgages
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IT is one of the more worrying developments of recent times that one set of mortgage holders is increasingly subsidising the lower interest rates being enjoyed by hundreds of thousands of others.
Indeed, the chasm between those on tracker and variable mortgages -- already an estimated €150 a month -- will almost certainly widen with the burden weighing down countless households for years to come.
The issue is now reaching a critical stage.
Can we stand idly by while those benefiting from the specified link to the ECB rate (tracker mortgages) continue to enjoy historically low interest levels while those unfortunate enough to be on variable loans regularly have ever higher repayments imposed?
Considering the economic and social backdrop against which this uneven burden is being borne, the time may have come to consider some radical approaches.
There is an argument that if we do not do something about it now it will lead to wider and deeper difficulties for so many people whose incomes have been sharply reduced by unemployment in particular.
One possibility would be to introduce a cap on the amount by which a variable mortgage's interest rate can be increased in any one year. This is the practice of some of our European neighbours and at least lessens the cumulative effect, as experienced here this year, of multiple increases in a relatively short time.
There is a real problem here. On the one hand, interest rate increases take huge amounts out of circulation: money that might otherwise be spent on goods and services will go to the bank in higher repayments. That reduces the amount of money in circulation, economic activity and, crucially, tax revenue to the Government.
On the other hand if we deny banks the oxygen of cash flow, many could be forced to seek additional Exchequer funding to keep their businesses ticking over.
It is a balancing act in which, either way, the Exchequer is likely to yet again be called upon to provide substantial financial support.
Ultimately the question facing those in Government may crystallise thus: where will the greater benefit ultimately lie in using taxpayers' money?
The decision may manifest its urgency sooner than we think, given the alarmingly large numbers having trouble meeting their repayments.
Irish Independent
