The future of the mortgage interest deduction
By Henk Jansen
One of the most important reasons for buying a house in the Netherlands is the deductibility of the mortgage interest. It is, in fact, the third most important reason after flexibility in location and the accrual of wealth.
Deductibility of mortgage interest
At the start of the 20th century, the Dutch government wanted to promote private ownership of homes. So, they decided to encourage people by making the related mortgage interest deductible.
A lot has changed since then, particularly towards the end of the former century. Currently, the mortgage interest is only deductible if:
› the loan is used for the purpose of buying a house, for the purchase-related expenses and / or for reconstruction of the house
› if the home is the principal residence
› the mortgage is taken out for a maximum of 30 years
› the excess value of a previous (own) home is invested in the house as well
What will the future bring us?
The Netherlands is the only country in the EU that still allows this deduction. This measure costs the Dutch government more than 11 billion euros per year.
On the other hand, home ownership (and the purchase and sale of real estate) also brings the government a lot of money, generated by measures such as transfer tax, home ownership tax, and VAT on newly constructed homes and reconstruction; a total of almost 10 billion euros a year.
Yet, since the end of the past century, there has been plenty of speculation on the complete abolishment of the deductibility of the mortgage interest.
Approximately 60 percent of homes in the Netherlands are in private hands. As the consequences of this measure would therefore be considerable, this is not a topic that any government has dared to "touch" yet.
Possible scenarios
The following scenarios have been considered by both politicians and the general public:
› to allow deductibility for those who are in the first tax bracket (33,45%, 2010)
› to put a ceiling on the maximum deductible loan (e.g. 500.000 euros)
› to abolish this measure in phases (e.g. by 5 or 10 percent per year)
The complete abolishment of the possibility to deduct the mortgage interest, which happened in Great Britain in the early 80's and in Sweden in the mid 90's, is not very probable in these economically difficult times. Yet, it is assumed that something will happen. The question is: When? And how?
Consequences for the Dutch housing market
The consequences of such a measure would be hard to predict. It largely depends on how and when it will be introduced.
Furthermore, not only the deduction of the mortgage interest will have to be looked into, but also other matters as expenses for homeowners such as transfer tax, home ownership tax and ground lease. The fact that it will become less attractive for prospective new buyers to purchase house seems inevitable. But also those who already own a home will have a hard(er) time once the mortgage interest is no longer deductible.
In any case, it is clear that both issues will have consequences for the prices of houses in the Dutch market.
Henk Jansen is an Expat Service Provider with more than 20 years of experience in the housing / mortgages area. For inquiries and / or remarks, feel free to comment below.
Henk Jansen was born and raised in Amsterdam by a Dutch father and an Irish mother. He is married to Ilona and has 2 children: Larissa and Roy. As a mortgage consultant and manager, he founded several companies since 1988. In 1999 Henk started, together with partners, the Herenvest Groep, where he specialized in expat services since 2002. He is an accredited mortgage consultant, an amateur football trainer and amateur football player. He is crazy about sport and is a true bon vivant, whose favourite leisure activities include travelling and going out for dinner. Besides being an inspired consultant, he is a born networker as well.Read more