The new government has chosen a “good” moment to speed up the planned cuts in mortgage interest tax relief . “With the market starting to show signs of overheating, an accelerated scale-back of mortgage-related tax facilities could curb the upward trend in home prices,” ABN AMRO Group Economics predicts. Furthermore, Group Economics expects there will be only a minor negative effect on housing costs, as mortgage interest rates are at historic lows. This might, however, change if mortgage rates trend upwards again – the Group hasn't ruled out that possibility long-term.
Philip Bokeloh, ABN AMRO economist: “We have seen record breaking numbers of housing transactions. Across popular areas, the number of homes for sale has plummeted. And because of the tight housing market conditions, prices are soaring. A faster scale-back of tax relief for homeowners could put the brakes on that trend. All in all, we believe the effect on prices will remain fairly modest, especially if the government introduces compensatory measures. Also, the significant drop in mortgage interest rates over the past few years has cushioned the effect that a tax relief squeeze will have on housing costs. Many home-owners have already capitalised on favourable market conditions and reduced their monthly interest payments. That means they also don't benefit as much from the tax deduction of interest. However, it's not impossible that interest rates will pick up again in the future. In which case those costs will rise for new buyers and home-owners whose fixed-interest term is coming to an end, while their right to tax relief has decreased.”
Deduction rate cut by 3% a year
Higher income, higher impact
