There are a number of good things in the Fine Gael banking document. However, the proposal that has caught the headlines – giving increased mortgage interest relief to the so-called “negative equity” generation of first-time buyers that bought during 2004-2009 – is a pretty terrible policy. Immediate comparisons with previous lamented FG proposals to compensate taxi drivers and Eircom shareholders are perhaps a little harsh but the policy makes little sense.
There are many people in Ireland today struggling to repay their mortgages. Many of these people are also in negative equity and this means that they cannot just sell their home and trade down to less expensive home with a mortgage they can afford. This is a genuinely serious problem and at some point the next government is going to have to work out how to deal with it.
To be fair to the FG document, it does contain some proposals aimed at dealing with the relevant problem of those who cannot pay their mortgages and are in negative equity, such as a new personal insolvency regime. However, the proposal to give every first-time buyer that purchased during this period is a blunderbuss policy that cannot be justified.
This proposal may help some people in negative equity but it will also help people who had lower loan-to-value ratios and are not in negative equity. Even to the extent that it does cover many people in negative equity, the idea that negative equity is, in itself, a problem is misguided. For those who took out a mortgage during this period, can still afford the repayments and don’t plan to move homes, the loss in value of their home has had an equivalent effect to losing money on an investment in shares: They are less wealthy but there is no good reason for the state to be compensating them any more than it should compensate those who lost money on investments in shares (Eircom or otherwise …)
In these straightened times, we simply cannot afford policies that arbitrarily hand out money to people who don’t need or deserve it. This idea should be canned and replaced by a more focused policy to deal with those who cannot cope with their mortgage repayments.