According to the legislation – mortgage interest relief should be based on the amount of mortgage interest actually paid in a tax year. Up to now many lenders operated the relief scheme based on the amount of interest that was charged on a mortgage – even if the borrower did not actually pay that amount of interest.
From January 1st 2014 onwards, lenders are obliged to grant Tax Relief at Source (TRS) based on the amount of interest actually paid by the borrower within a tax year.
This change will not affect borrowers who make the full repayments on time, in accordance with their mortgage loan agreement. It will of course affect the many hundreds of borrowers who are struggling to meet their mortgage repayments – and they will see their repayments rising as a result – which will put them in a worse situation.
Revenue is also working with mortgage lenders to identify accounts on which interest has not been paid for a period of 6 months or more. TRS will be ceased on these accounts and will only be restored when 3 consecutive payments have been made and the borrower re-applies for the relief.