Should MIRAS be re-introduced?

[worsy]

Lots of screaming for help with mortgage rates at present. Unfortunately rates are not coming down and this is going to cause a lot of people some severe pain. Politically, all the money spunked on Energy cost support will mean nothing if people then lose their homes.

Question is, should MIRAS be re-introduced?

[wisbech]

No.

[essayer]

Yes, boomers moan about the 80s high interest rates but they had it much easier with this support plus lower relative house prices

[JagLover]

And another no. There is no reason for the government to be subsidising the purchase of property through the tax system.

[Jockman]

JagLover said:

And another no. There is no reason for the government to be subsidising the purchase of property through the tax system.

Correct.

[Oakey]

If people are struggling with their mortgages they'll just have to cut their cloth, or make sacrifices, or work harder or get another job.

Or something.

[stuckmojo]

No.

The bubble needs deflating.
It's the biggest hindrance to growth and prosperity in the UK.

[Eric Mc]

What is your view on businesses being able to offset expenses (including loan interest) against their trading income for tax purposes?

And landlords STILL get tax relief on their mortgage interest (yes, it's restricted compared to in the past but it hasn't been abolished entirely)

And limited companies STILL get full tax relief on their mortgage interest against their rental income.

Inconsistencies in the tax system abound.

[worsy]

MIRAS was abolished in 2000 and it would appear has had zero effect on trimming the bubble.

[Eric Mc]

worsy said:

MIRAS was abolished in 2000 and it would appear has had zero effect on trimming the bubble.

Restrictions on MIRAS were introduced in 1989/90 and it was the imminent introduction of these restrictions that prompted a house price boom at that time.
As you say, it was abolished completely in 2000.

[worsy]

Eric Mc said:

worsy said:

MIRAS was abolished in 2000 and it would appear has had zero effect on trimming the bubble.

Restrictions on MIRAS were introduced in 1989/90 and it was the imminent introduction of these restrictions that prompted a house price boom at that time.
As you say, it was abolished completely in 2000.

Yup, the point though is that complete withdrawal has not, over the last 23 years meant a level field. That being said, one might argue that MIRAS may have fuelled even more increase in prices.

[Eric Mc]

ALL government rules (or, more importantly, rule CHANGES) have an impact on human behaviour and/or markets. That is usually the intention - although sometimes the way humans behave or the impact on the markets that actually happen are not exactly what the Government THOUGHT would happen.

For decades, UK governments, especially Conservative ones, WANTED people to be able to buy their own homes so tax policy was deliberately biased to help people achieve this goal. Originally, there were NO restrictions on how much mortgage interest (and other finance charges) could be offset against your income. In fact. MIRAS was only ONE way of going about claiming this relief.

Effectively, MIRAS (Mortgage Interest Relief at Source) only allowed you to claim a reduction at your basic rate of tax. In reality, you were also able to claim at your higher rate of taxes too. In order to get higher rate tax relief, you had to make a separate claim outside of the MIRAS system. The big change in 1989/90 was that higher rate tax relief was abolished.

These days people seem to think that the legislation allowing mortgage tax relief WAS MIRAS. It wasn't. MIRAS was only one element of claiming the relief.

[worsy]

Eric Mc said:

ALL government rules (or, more importantly, rule CHANGES) have an impact on human behaviour and/or markets. That is usually the intention - although sometimes the way humans behave or the impact on the markets that actually happen are not exactly what the Government THOUGHT would happen.

For decades, UK governments, especially Conservative ones, WANTED people to be able to buy their own homes so tax policy was deliberately biased to help people achieve this goal. Originally, there were NO restrictions on how much mortgage interest (and other finance charges) could be offset against your income. In fact. MIRAS was only ONE way of going about claiming this relief.

Effectively, MIRAS (Mortgage Interest Relief at Source) only allowed you to claim a reduction at your basic rate of tax. In reality, you were also able to claim at your higher rate of taxes too. In order to get higher rate tax relief, you had to make a separate claim outside of the MIRAS system. The big change in 1989/90 was that higher rate tax relief was abolished.

These days people seem to think that the legislation allowing mortgage tax relief WAS MIRAS. It wasn't. MIRAS was only one element of claiming the relief.

MIRAS introduced in 83 was at source right? So the actual payment to the mortgage lender was lower. Prior to 83 it was via tax return correct?

[lauda]

Jockman said:

JagLover said:

And another no. There is no reason for the government to be subsidising the purchase of property through the tax system.

Correct.

Also, it would negate the whole purpose of raising interest rates in the first place. Inflation remains stubbornly high and whilst you can argue that much of this isn't demand-driven inflation, if the government just puts more money in peoples' pockets, the BoE will just keep raising rates.

[worsy]

lauda said:

Jockman said:

JagLover said:

And another no. There is no reason for the government to be subsidising the purchase of property through the tax system.

Correct.

Also, it would negate the whole purpose of raising interest rates in the first place. Inflation remains stubbornly high and whilst you can argue that much of this isn't demand-driven inflation, if the government just puts more money in peoples' pockets, the BoE will just keep raising rates.

It's not demand driven.

Do you not think the following has already had a huge effect?

Fiscal drag on taxation
Council Tax
Energy Bills
Insurance
Food Costs
Used and new car prices
etc
etc

Certainly felt in this household.

[Eric Mc]

worsy said:

MIRAS introduced in 83 was at source right? So the actual payment to the mortgage lender was lower. Prior to 83 it was via tax return correct?

Yes - but the relief was only at the basic rate. If the taxpayer was a higher earner and paid tax at higher rates, they needed to make a separate claim in order to get mortgage interest relief at the higher rates. MIRAS itself only operated at the basic rate tax levels.

[P-Jay]

No, if nothing else it's counterproductive.

I don't know if it's just me, or do people really not understand what's happening and why? The BOE are lifting rates specifically to rise mortgage payments (as well as other credit facilities, but it's mostly mortgages) to reduce consumer spending power and confidence to quell inflation. So what's the point of doing all that, just to undo it another way? Especally if it's funded by taxation when the Country needs all that it can get.

The only real question is can we actully quell inflation that's being driven by factors other than consumer confidence this way? Or should we? We knew Brexit was going to cause inflation, we import a lot more than we export and we've made that more expensive.

The BOE only have one tool, interest rates and they're duty bound to control inflation. Prices are still contiuning to rise, 8.7% as of this morning, at the same time we're taking hundreds if not thousands of pounds of disposible income away from homeowners (and renters not long after). They're talking about another 0.5% base rate rise on Thursaday, but there's such a delay in the process with fixed rate mortgages. it's going to be a holy mess, and very very messy. We could be looking at a 2008 size shock to the system, in the UK at least.

[lauda]

worsy said:

It's not demand driven.

Do you not think the following has already had a huge effect?

Fiscal drag on taxation
Council Tax
Energy Bills
Insurance
Food Costs
Used and new car prices
etc
etc

Certainly felt in this household.

I wouldn't argue that it's not had an effect and in the cases of some individuals/households, that effect may be huge. But at the level of the economy overall, the impact doesn't seem to have been that significant. We're not in recession and actually had small GDP growth in Q1 2023. A friend who works in the airline/travel industry say that they his company is experiencing huge demand for foreign holidays.

The problem is that people have got used to borrowing very cheaply and have in no way stress-tested their finances for a return to what is a far more normal level of interest rates based on historic trends. My first mortgage in 2008 was 6.75% for a two year fix and I've always assumed that rates could, any would, return to more like that level eventually. And here we are...

We're not in the position we were in the 80s with soaring rates and huge numbers of people in negative equity. I don't think it is appropriate to continue to use taxpayer money to fund the house price bubble and whilst I know it wasn't very popular, I agree with Huw Pill when he said that people need to accept that they're poorer now. The alternative is to spend more money we don't have to ultimately just kick the can further down the road.

[Digga]

There's a house price bubble because the UK has a chronic lack of supply vs. aggregate demand for homes.

There are a number of parameters which compound the issue, not least the heavily pro-cyclical declines in construction. What makes this worse is that, not least due to the destruction of firms in the recessionary periods, it is almost never possible to 'catch up' on lost years of building.

The spasmodic nature of the UK market has recently forced both Legal & General and also Berkely to question whether modular, off-site construction (theoretically greener and more efficient) can ever work.

https://www.theconstructionindex.co.uk/news/view/b...

https://www.theconstructionindex.co.uk/news/view/l...

Both articles above also cite the very biggest supply issue; planning costs and delays. These are well within the remit of the government to remove.

[leef44]

I can't find the article I read this morning on the inflation report for May (wanted to link it here). Basically it said a few core items had dropped a little bit in inflation but the big drivers for the overall increase was air travel, music festivals and video games.

So the anecdote from previous poster seemed to be pervasive. All three of those above items I see as disposable income spending so it does seem that inflation is still driven by disposable income spending.

As to MIRAS? No, this is counterproductive as explained already in this thread.