Homing in on the Miras millions

There is something supremely pleasant about pushing at an open door. Just as the Chancellor, Gordon Brown, prepares to cut or even abolish one of the most cherished of Thatcherite perks - mortgage interest tax relief - lenders are themselves signalling that they accept its likely demise.

Perhaps that is a mite unfair. OK, they are no longer vehemently defending the current system of tax relief on mortgages (Miras), available to all homeowners no matter their income. Their extremely muted defence of the status quo has none of the force that characterised the ultimately futile battle against Peter Lilley's benefit reforms in 1995, cutting interest payments for homeowners who lose their jobs.

Indeed, lenders are now actively looking at ways of "refocusing" the system to target owner-occupiers who may find it difficult to meet their mortgage payments.

Miras, in its much-reduced form, gives homeowners 15 per cent tax relief on the first pounds 30,000 of their mortgage, regardless of income. The relief is worth about pounds 24 a month to borrowers - a relatively small amount for most, but one which none the less costs taxpayers about pounds 2.4bn a year.

The Council of Mortgage Lenders (CML), the industry trade body, and Shelter, the campaign for the homeless, this week submitted detailed proposals to Mr Brown, calling for the introduction of a mortgage support scheme targeting low-income earners and the unemployed.

Peter Williams, deputy director-general of the CML, expresses some of his organisation's traditional policy when he says: "Shelter and ourselves have a common cause in agreeing a safety net structure for homeowners, but we don't back the premature abolition of Miras." His commitment to Miras is, however, not full-blooded: the CML believes that Miras should remain untouched in the June budget while the industry systematically works through the options.

Chris Holmes, director of Shelter, takes a more radical approach. He calls for the abolition of Miras at the earliest opportunity. Mr Holmes estimates that a mortgage support scheme in its place would cost around pounds 350m a year, a fraction of the amount currently handed out in Miras. Shelter's proposal to the Government argues that the saving accrued from the abolition of Miras, minus the sum needed to provide the new scheme, should be invested in housing.

Somewhat surprisingly, Shelter's proposals leave lenders unfazed. A Halifax spokeswoman says Miras is something that could quite easily be abolished and replaced with a one-off grant for people taking out a mortgage, particularly first-time buyers.

However, the Halifax warns that while it would "consider a mortgage support scheme as an alternative to Miras" it does not want to lose the value of the subsidy itself, on the basis that people on a mortgage of pounds 30,000 or thereabouts rely on Miras to meet their financial obligations, especially with the prospect of higher interest rates.

Shelter's scheme proposes that the mortgage support scheme should replace Miras for low-paid people. The scheme could replicate the housing benefit system available to tenants, or be dressed up as a US-style tax credit system. Mortgage benefit or credit would kick in when a homeowner suffers a drop in income, or is on a low income and is struggling to meet mortgage payments or falls into arrears.

According to Shelter's model, the scheme could provide 100 per cent of the cost of a mortgage for people earning up to pounds 80 a week, and 50 per cent for people earning pounds 160 a week. The system would combine public subsidy with compulsory private insurance, so when a homeowner's insurance runs out they would become entitled to mortgage support.

Shelter and the CML's brave new plans may have the effect of confirming in the Chancellor's mind that Miras is no longer the popular middle-class perk it once was and can therefore be scrapped. Whether, given Labour's many other priorities, Mr Brown is tempted to leave the money he saves in the housing pot is another mattern