# Tax relief on negative equity payments



## Saudi (15 Feb 2010)

Hi

Not sure if this has been discussed on here yet (did a quick search but couldn't find anything) but what do people think of the idea of there being tax relief on payments to your mortgage to reduce your negative equity similar to the relief you currently get for paying in to your pension.

My thinking is if people are in negative equity there should be an option to allow them pay money in to their mortgage and reduce their negative equity and claim tax relief at the rate of tax they pay (subject to the usual limitations). Whilst the government would miss out on the tax paid in the long run it should assist in getting the housing market moving and also assist in recapitalising the banks. You would only be able to avail of the scheme to the point where you have re-balanced your mortgage to your original investment (i.e. 80/90% mortgage) and relief would only be available against your PPR. 

I would think it would be quite easy for statements of negative equity to be obtained from a bank accredited valuer which can be sent into revenue to allow a person participate in the scheme.

Makes as much sense as tax relief on pension payments in my opinion.

Anyone have any thoughts?

Saudi


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## Howitzer (15 Feb 2010)

This pretty much already exists - it's called Mortage Interest Relief. The relief on the interest allows you to make greater capital payments if you so wished (15% of all interest can possibly be reclaimed).

People don't seem to notice reliefs that are applied at source. This was, arguably, one of the contributing factors to the boom/bust. The relief kept getting increased as a vote getting measure, but that just got swallowed up as it got assumed into mortgage payment calculations.

These kind of smoke and daggers manouvers got us into this mess. They won't get us out.

Just my opinion.


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## mathepac (15 Feb 2010)

How do you get a realistic current valuation against which to bench-mark the purchase price of a property and who pays for it?

As the market recovers, how do valuations and allowances get updated?

When a PPR is eventually sold / traded-up, is there to be a mechnism to recover the additional allowances used (given that CGT is not applicable to your PPR)?


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## Saudi (15 Feb 2010)

Howitzer, mortgage interest relief isn't a sufficient carrot or obvious enough for most people to make the extra capital payments.  This would be a real incentive for people to reduce their debt burden.

Thresholds could be put in place beyond which you can't claim relief and the valuation process should be easy enough to implement (the banks have been successfully implementing it for years... ) and should be funded by the borrower in order to qualify for the relief.

There are plenty of people in negative equity who can manage their mortgage payments but because of what is a effectively a 50% rate of tax on income find it difficult to make additional payments to reduce their negative equity so will be stuck where they bought for a long time to come.

I would suggest that people who did avail of the relief would have to pay CGT on any rise in value up to the level of the relief they claimed.


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## minion (20 Feb 2010)

It would be better to allow them to switch to interest only until they have enough money to start paying down the debt.  You cant reward people for getting themselves into trouble.

What about Joe, who overpaid for the last few years hoping to get his debt down.  Hes not in negative equity now, but would have been had he not been so responsible.

I read something elsewhere today about getting the property market moving again. 
to abolish stamp duty for everyone for 3 years, to be replaced by a property tax then.  Increase TRS for all mortgage holders, not just those in neg eq, or FTBs.  Get the secondhand market going too.  Using up the overhanging stock, creating jobs and generating revenue.


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## Nostradamus (24 Feb 2010)

I think this is an excellent idea Saudi. It's some relief for the people unfortunate enough to be in a negative equity situation because of our incompetent banks, government, etc. and this money will help the balance sheets of banks who need to start lending again...

The government also have to make sure that they aren't fleecing people on the double when this property tax comes in. All stamp duty paid from 2004 on should be a credit against any income tax. Also property tax should be done by 'area rank' i.e if you are living in Swords claiming Malahidage you pay the price for it. Might stop this silly practice...


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## salvidor (24 Feb 2010)

i really cant see how this helps?? 


if you are in NE so what? you cant change mortgage provider and you cant trade up. you took out a loan and it didnt work out the way you wanted.


children dont need their own rooms. make the most of what youve got.


if you cant meet your repaymemts thats different, rent a room, rent your whole house and rent somewhere cheaper, move in with family...


granted there are some situations where people need to be helped out but blanket NE relief sounds ridiculous to me.


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## Saudi (25 Feb 2010)

Salvidor based on that opinion there shouldn't be any support or relief for the banks, small business or anyone else who has been affected by the downturn in the economy.

Trying to come up with ideas which might get the economy moving again.  Like it or not the housing trade does play a part in our economy.  It obviously should never have reached the level that it was at previously in terms of a percentage of our GDP but a somewhat liquid housing market is part of a healthy economy. 

The suggestion isn't to benefit speculators just ordinary punters who bought a house/apartment to live in and were unfortunate enough to buy at the peak and in a number of cases paid significant sums for stamp duty (I myself paid €50k in stamp).


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## jhegarty (25 Feb 2010)

All you are doing it transferring money from the people who acted responsibly , to those who were not.

I bought a cheap house that was falling apart. Spent 3 years of hard work and lots of money getting into a good state. I am now left with a mortgage of less then €500 a month , and hopefully no negative equity (I haven't checked , it doesn't affect me).

Should I now subside someone earns the same as me but went out and bough a €400k new build ?


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## RIAD_BSC (25 Feb 2010)

jhegarty said:


> All you are doing it transferring money from the people who acted responsibly , to those who were not.
> 
> I bought a cheap house that was falling apart. Spent 3 years of hard work and lots of money getting into a good state. I am now left with a mortgage of less then €500 a month , and hopefully no negative equity (I haven't checked , it doesn't affect me).
> 
> Should I now subside someone earns the same as me but went out and bough a €400k new build ?


 

I don't agree with blanket NE relief either, it's batty. But J please explain to me how someone who paid 400k for a new build at the height of the boom automatically didn't act responsibly, in your book? That was the price of the house at the time. Just because someone bought at the height of the boom and is now deep in NE, it doesn't mean they were reckless, or irresponsible... Most of them were just plain unlucky.


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## jhegarty (25 Feb 2010)

RIAD_BSC said:


> who paid 400k for a new build at the height of the boom automatically didn't act responsibly, in your book?



Because they didn't take account of

1) Prices can go down as well as up
2) You wages may drop
3) You may loose your job
4) They didn't take enough insurance 


etc..etc..etc...


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## Howitzer (25 Feb 2010)

Whether someone acted responsibly doesn't matter one iota. All that matters is your current financial circumstances.

If you are currently able to service your mortgage and you're in negative equity - so what. Keep paying your bills and suck it up.

If you are NOT able to service your mortgage and you're in negative equity - something needs to be done to remedy our arcane bankruptcy laws so this person can walk away, the asset is disposed, bankruptcy procedings follow their course and maybe 5 years later the person can get credit. Follow best international (Eurozone) practices.

If you are currently able to service your mortgage and you're in negative equity BUT you need to move (trade up / move for work) - a mechanism has to be found to allow "short sales" whereby you sell the property, as much of the mortgage is paid off and the rest is rolled into a personal loan which follows the person. Follow best international (Eurozone) practices.

And that's it. No more scenarios.

Anyone hoping for money to fall from the sky is dreaming and/or deluded. Debts have to be repaid or written off. Wacky solutions which do nothing more than delay either of these 2 options are simply a waste of time and effort.


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## RIAD_BSC (25 Feb 2010)

jhegarty said:


> Because they didn't take account of
> 
> 1) Prices can go down as well as up
> 2) You wages may drop
> ...


 
1) prices are back at, what, 2002 levels now? So in your book, everyone who bought a house between 2002 and 2007 was "irresponsible" because their house is worth less than what they paid for it? C'mon..... Prices are a function of the market. They've plummeted since 07, we all know that. But that doesn't mean that people who paid higher prices were irresponsible to do so. It was justa timing issue for many of them.

2) and 3) are two sides of the same coin. Again, neither is an indication of someone's level of responsibility re their actions in the housing market. Anybody's wages can drop and anyone can lose their job in this climate.

4) I don't understand what you mean by this one at all.

Howitzer is 100% right. A distinction needs to be drawn between those who are a) in NE but still in work and able to service their loan as before, and b) those who are in NE and also unable to pay back what they borrowed.

I'm an a) - I will happily pay back what I owe and don't need or want a bailout from anyone, thank you very much. I feel sorry for those who are b), and they'll probably need some help.

Just because someone bought at the top of the market, it doesn't automatically mean they were reckless. The only people who were irresponsible were the people who borrowed way more than they could manage.


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## igy (25 Feb 2010)

On point 1) above, people were only irresponsible if they couldn't afford the mortgage after stress testing for a job loss and higher interest rates
(IMHO)


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## salvidor (25 Feb 2010)

Saudi said:


> Salvidor based on that opinion there shouldn't be any support or relief for the banks, small business or anyone else who has been affected by the downturn in the economy.



Thats not what I said/ meant. 



Saudi said:


> Like it or not the housing trade doe s play a part in our economy.  It obviously should never have reached the level that it was at previously in terms of a percentage of our GDP but a somewhat liquid housing market is part of a healthy economy.



Yes, but relief on NE only serves in the main, in heading back towards those days with no lessons learnt... imo.


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