Time is right' for mortgage relief to end

The Chancellor's decision to abolish mortgage interest tax relief from April 2000 will cost the average homeowner an extra ?17 a month.

Gordon Brown told the Commons that in the last year mortgage rates had come down significantly. the time was right to complete the phasing out of Miras (mortgage interest tax relief).

He said home-owners had been given far more than he was taking away. Five interest rate cuts since the start of October have reduced monthly payments for someone with a typical ?60,000 interest-only homeloan from ?425 to ?330 - a saving of ?95 a month or ?1,140 over a year.

But banks and building societies said that while not unexpected, scrapping Miras was equivalent to a 0.35 per cent increase in mortgage rates for a typical new borrower.

Those on low incomes, first-time buyers and borrowers outside London and the South-east will be hit hardest, they argued.

Miras has been eroded over the last few years. Tax relief is now restricted to 10 per cent on mortgage interest payments for the first ?30,000 of a loan. It is currently worth ?17.37 a month for the typical borrower with a mortgage over ?30,000 - up to ?208 a year.

Tax relief was originally allowed on interest paid on any loan. In 1974 it was restricted to mortgage loans and limited to ?25,000, and the scheme as we know it now was introduced in 1983.

Miras will be withdrawn from April 6 2000, a change that will remove a 'distortion' from the housing market and make the tax system fairer, the Inland Revenue said .

It is estimated the relief will cost the Government ?1.4 billion in 1999-2000 - a fraction of the ?7.7 billion bill for 1990-91. Ten million borrowers currently qualify for Miras.

Michael Coogan, director general of the Council of Mortgage Lenders, said the decision was 'unfortunate'. He added: 'Although the impact may be modest in London and the South-east, the cut will be felt disproportionately in the Labour heartlands of Scotland, Wales and the North of England.' Miras is worth more to home-owners outside the South-east because it represents a bigger chunk of total monthly repayments.

Cheshire Building Society said: 'This will hit people with smaller mortgages the hardest.' Home-buyers can expect to see their monthly repayments increase by just over ?17. The ?330.13-a-month payment for a ?60,000 interest-only borrower with the Halifax would increase to ?347.50 a month - up ?17.37.

The Building Societies Association said it was no surprise that the Chancellor announced the abolition of Miras, but added: 'It is disappointing for home-owners, particularly for those on low incomes, first-time buyers and borrowers outside London and the South-east.' The Halifax was among those saying that the change would have little effect on the housing market. It would be 'largely balanced out by income tax rate reduction'.

Before April 1994, the rate of tax relief given to home-owners was 25 per cent. That month it was cut to 20 per cent, and a year later it was reduced again to 15 per cent. A reduction to 10 per cent announced in Mr Brown's July 1997 Budget took effect in April 1998.

Halifax figures for a ?60,000 interest-only borrower show that while Miras is now worth ?17.37 a month, in the early 1990s it was worth ?85 a month. This had fallen to ?41 by the start of 1995.