Fall of the Dutch

[Crusader]

The main program that our government has to promote home ownership is that we are able to deduct a portion of our mortgage interest from our gross income when calculating taxes.

Hi Kandrathe,
yes that is how it is in the Netherlands as well. But as opposed to crusader I am 100 % against this thing. I also have a house and profit from this rule but it gives a completely wrong incentive to people.

A few years ago I just thought it was a good idea to quite the mortgage interest deduction because it favours people that buy very expensive houses (we don't call it villa-subsidy for nothing). So if you buy a house of a million euros with an 1M euro mortgage you might get back (say there is a 5% interest rate) 25000 euro per year if you have a high salary.....and this is not what this law was meant for.


Now since the crisis (1st) I am all in favour of completely abolishing the law, because it tells people it is good to loan money, and we have seen that that is not a good thing. Of course this measure has to be cancelled very slowly (a few% or with decreasing maximum at a time) because if you do this all at once it will damage the housing market and economy. A smart person should make sure he can pay for his mortgage even if the deduction is stopped or even if for example interest rate go up 4 %, because if you can't you are just too vunerable.

Of course as crusader says it will cost you, but house prices will start being more normal.

A bit shortsighted I am afraid Eppie. The effects may be quite bad indeed. First of all, it will force some people out of their houses. Banks will not give out mortages any more to the poorer segment; pensioners, starters (like myself), low-pay workers, etc simply because they can't afford it any more. This will cause the housing market to crash; A good segment of the population will want to rent instead of buy, giving an overwhelming amount of houses that can't be sold. This also causes a shift in wealth from the general house buying population to the people who rent out houses; the wealthy and corporations.

Yes, the villa tax benefits the wealthy. The solution should not be to absolve it completely, but to simply put a cap on it, a maximum per person.

Lending money is indeed a problem (look at the USA now). But the alternative is far, far worse; hiring. As my father once told me; every penny you use to hire a house, is thrown away, whilst buying a house with a mortgage is an investment.