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At least here in The Netherlands, a reasonable explanation for our high debt is the fact that mortgage interest rates are tax deductible; this effectively means

At least here in The Netherlands, a reasonable explanation for our high debt is the fact that mortgage interest rates are tax deductible; this effectively means this tax benefit increases the cost of a house (as people have more spending power), and mortgages are thus higher. It’s a silly system, yes, but it’s been like this since forever and it’s slowly being phased out. In addition to this tax deductibility, there’s also NHG which allows people to pay a one-time fee (included in the mortgage) so that a bank is guaranteed to get their money back in case you are unable to pay your debts (resulting in less risk for the bank and thus lower interest rates). Again, this pushes up mortgage prices, but lower overall risk for everybody.

yokaze 6y ago
Personally, I dislike taking the risk of the bank. Assessing the risk and setting the interest rate accordingly is the job of the bank. Taking that risk away eliminates that function of a bank. A one-time fee also seems to be counter-intuitive, if you want to be more social and enable poorer people not to be further disadvantaged by being naturally in a higher risk group on top of not having the capital to pay such a fee on top. Or is there a social component in that fee?
- Bombthecat 6y ago
  As far as i understand it reduces interest, but increases the price. Basically a hidden interest increase.. Overall maybe cheaper. But i dont think by much..
airza 6y ago
Although I've loved living here and generally am on board politically with the social welfare program, government policy here really seems to be messing with the housing market! Houses almost inevitably go for exactly the mortgage amount the government insures, with cash on top of that. The median income here is ~36,000 euros but this amount is over 300,000 euros! It's baffling. It has the nice effect of making the loan rates just over 1% or whatever, but it doesn't have to be this way... I'm sure DFI is keeping the insane bubble going, but I wish they would make this a priority.
- apexalpha 6y ago
  Yes, this is very true. Dutch housing is insane now. Most of the recent increase is due to lower interest rates by the ECB, driving up the price as you say. But in the 90s and 00s people would regularly borrow up to 120% LTV with no downpayment whatsoever. It was the norm to just also borrow for a new kitchen or bathroom, and €0 downpayment on it all. Ridiculous situation that the banks exploited by offering interest only loans or even stock-mortgages where they would put your down payment in stocks in stead of paying down the mortgage. The government slammed down hard on it all after 2008 and is also building down the interest deduction, luckily.
  - jonkoops 6y ago
    As a young house-owner I am quite upset at the banks and at the older generation. They reaped all the benefits, whilst I end up with debt out of college and don't have access to cheap housing. We got fucked by the boomers so hard. Even my grandfather, who bought his house for 75.000 guilder and is now 83 still has outstanding debt due to this system of interest only mortgage. He's lucky that he can sell his house at a huge profit if he wants to live in a care home, but I am sure the bank earned what he borrowed and then some over his lifetime. Also the fact that the government is killing the NHG is infuriating, they know damn well that housing is too unaffordable for young people to qualify anymore.
    - apexalpha 6y ago
      Yes, interest only loans only benefit one party: the banks. And they preyed on financially illiterate people for their profits. All while reaping bonuses and then getting bailed out in 2008. The government is not killing NHG, though.
    - bollorior 6y ago
      Your grandfather is surely much better off than if he had been renting that house all those years. He would also have paid a huge total amount (to a landlord) and wouldn't have any share in the appreciation of his house value. He also probably has better security of tenure (a landlord could have decided to evict him and sell the property when the price went up).
FreshFries 6y ago
You are not alone. There are more countries in Europe who sponsor their banks in the same style. It is disgusting, as suddenly the whole society is paying (part of) the too high interest of a few. It gets ever worst when you realise the higher the mortgage, the more likely the richer the lender, the higher the tax deduction, the higher the amount society pays. This is also the reason why nothing will change fast on the 'interest deduction' front.
eythian 6y ago
The NHG only applies to mortgages under a certain value, €325.000. This means that more and more it isn't available as prices go up (though I don't know anything about how or when they adjust that value.)

yokaze 6y ago

Personally, I dislike taking the risk of the bank. Assessing the risk and setting the interest rate accordingly is the job of the bank. Taking that risk away eliminates that function of a bank. A one-time fee also seems to be counter-intuitive, if you want to be more social and enable poorer people not to be further disadvantaged by being naturally in a higher risk group on top of not having the capital to pay such a fee on top. Or is there a social component in that fee?

Bombthecat 6y ago
As far as i understand it reduces interest, but increases the price. Basically a hidden interest increase.. Overall maybe cheaper. But i dont think by much..

airza 6y ago

Although I've loved living here and generally am on board politically with the social welfare program, government policy here really seems to be messing with the housing market! Houses almost inevitably go for exactly the mortgage amount the government insures, with cash on top of that. The median income here is ~36,000 euros but this amount is over 300,000 euros! It's baffling. It has the nice effect of making the loan rates just over 1% or whatever, but it doesn't have to be this way... I'm sure DFI is keeping the insane bubble going, but I wish they would make this a priority.

apexalpha 6y ago
Yes, this is very true. Dutch housing is insane now. Most of the recent increase is due to lower interest rates by the ECB, driving up the price as you say. But in the 90s and 00s people would regularly borrow up to 120% LTV with no downpayment whatsoever. It was the norm to just also borrow for a new kitchen or bathroom, and €0 downpayment on it all. Ridiculous situation that the banks exploited by offering interest only loans or even stock-mortgages where they would put your down payment in stocks in stead of paying down the mortgage. The government slammed down hard on it all after 2008 and is also building down the interest deduction, luckily.
- jonkoops 6y ago
  As a young house-owner I am quite upset at the banks and at the older generation. They reaped all the benefits, whilst I end up with debt out of college and don't have access to cheap housing. We got fucked by the boomers so hard. Even my grandfather, who bought his house for 75.000 guilder and is now 83 still has outstanding debt due to this system of interest only mortgage. He's lucky that he can sell his house at a huge profit if he wants to live in a care home, but I am sure the bank earned what he borrowed and then some over his lifetime. Also the fact that the government is killing the NHG is infuriating, they know damn well that housing is too unaffordable for young people to qualify anymore.
  - apexalpha 6y ago
    Yes, interest only loans only benefit one party: the banks. And they preyed on financially illiterate people for their profits. All while reaping bonuses and then getting bailed out in 2008. The government is not killing NHG, though.
  - bollorior 6y ago
    Your grandfather is surely much better off than if he had been renting that house all those years. He would also have paid a huge total amount (to a landlord) and wouldn't have any share in the appreciation of his house value. He also probably has better security of tenure (a landlord could have decided to evict him and sell the property when the price went up).

FreshFries 6y ago

You are not alone. There are more countries in Europe who sponsor their banks in the same style. It is disgusting, as suddenly the whole society is paying (part of) the too high interest of a few. It gets ever worst when you realise the higher the mortgage, the more likely the richer the lender, the higher the tax deduction, the higher the amount society pays. This is also the reason why nothing will change fast on the 'interest deduction' front.

eythian 6y ago

The NHG only applies to mortgages under a certain value, €325.000. This means that more and more it isn't available as prices go up (though I don't know anything about how or when they adjust that value.)