Scrapping the mortgage interest deduction could cost new homeowners €5,000 more per year

The abolition of the mortgage interest deduction, like GroenLinks-PvdA proposes in its election program, is “inevitable and even desirable in the long run.” But it will have consequences, particularly for new homeowners, according to mortgage expert Thomas de Leeuw of Frits Hypotheken. “In the worst-case scenario, first-time buyers will pay almost €5,000 more per year.”

GroenLinks-PvdA wants to scrap the mortgage interest deduction because it drives up home prices. According to many economists, the Netherlands has accumulated a mountain of debt because of this deduction. Homebuyers can afford higher mortgages because the Tax Authority covers part of their interest costs, so they can bid more on scarce homes, driving up prices. International institutions like the IMF and OECD have warned for years that the deduction has more disadvantages than advantages.

This is true, according to mortgage expert De Leeuw. “It disrupts the market, and the only real winners are the banks,” he said in a press release. But he is worried that reducing and scrapping it too fast could result in a “financial disaster for young homeowners.” Party leader Timmermans told Nieuwsuur that he wants to phase out this deduction within 8 to 12 years. “That’s too soon to absorb such a significant financial blow,” De Leeuw said.

“Our calculations show that, in the worst-case scenario, first-time buyers will pay almost €5,000 more per year,” De Leeuw said. “This is a huge burden for people who are already struggling to finance a home. This group bought at the highest prices, with the largest mortgages, and took the mortgage interest deduction into account in their purchase decision.”

Things could be even worse if the reduction of the mortgage interest deduction coincides with home prices falling. “And we’re already seeing the first sign of a slowdown in Amsterdam,” De Leeuw said. If this happens, “first-time buyers could find themselves up to €50,000 more underwater.”

Left-wing parties have been pushing to scrap the mortgage interest deduction for years. The PvdA first proposed it in 2006, according to the Telegraaf. In recent years, the deduction has undergone significant changes. Once, homeowners could deduct the costs of a second home and all sorts of renovation costs. That has been curtailed. The deduction has also been gradually limited from the highest to the lowest tax bracket.

But it never reached a complete abolition. After all the austerity measures, the deduction has become somewhat sacred to right-wing parties, who see homeownership as an integral part of the Netherlands and want to support that with this deduction. So there’s never been enough support to scrap it.