8 ms·

I don't know the particulars of the other OECD countries, but in the Netherlands, the vast majority of household debts are mortgages (as alluded to in the artic

by em500 6y ago

I don't know the particulars of the other OECD countries, but in the Netherlands, the vast majority of household debts are mortgages (as alluded to in the article). The main drivers are probably the tax policy: mortgage interest payments were fully deductible (untill the very slow phasing out reforms after the 2008 financial crisis). This sounds similar as in the US, but in the Netherlands/Europe the effect is stronger because marginal tax rates are high (>50%) and the top income tax bracket kicks in much earlier than in the US. It starts around 60k in the Netherlands, so beyond 60k more than half of every extra earned Euro goes to the state. Due to the full deductibility, the common narrative became: if you're in the top tax bracket, the state pays more than half your mortgate interest. For most working households, pensions and mortgages are the only substantial tax relieves, which predictably lead to households maxing out their pensions and mortgages. In the Netherlands, zero-downpayment (or even negative-downpayment), interest-only mortgages are/were the norm. Before the 2008 crisis, it was very common for respectable financial advisors and banks in the Netherlands to advise households to borrow as much as they can on a 30 year mortgage, never pay down the debt and put everything in the stock market. (Incidentally, my distaste for the bad incentives that come with the tax gimics in high public-spending regimes is one of the reasons than I, a European welfare state citizen, am probably more right leaning, cold-hearted fiscal conservative than the median young progressive American tech-forum dweller.)

archi42 6y ago
Wait, what?! I recently checked if I can deduce some of the expenses from buying a house, but as long as I buy it myself to live there the state [Germany] says "screw you". If I bought it to rent it out, I could deduce some of the expenses. Now I need to figure out if it makes sensoe to start a housing company to buy a house and rent it out to myself so that I can deduce some of the expenses... (IANAL, but I suppose that might be tax fraud - OTOH I wouldn't be too surprised if it is not).
- galuggus 6y ago
  Would it be legal to partner with a friend and rent houses to each other ?
  - valzam 6y ago
    The problem is that you need to charge market rate, which the state then taxes as income. I would think it's unlikely to save you money. (If you don't charge market rate the tax office will either assume it's a gift and tax the renter on the rent saved or assume a market rate for income tax purposes)
    - archi42 6y ago
      IANAL, but I did some research for Germany: Assuming you need a bank loan to buy your house (and assuming the bank plays along), it seems you're able to deduce the interest on the loan. Same holds for anything you perform to increase the value of the house (e.g. new roof). Now of course if the company pays e.g. 1000 Euro per month for the loan(s), it has to charge the tenants (=me & my SO) more than that plus taxes. The question is now if the effective tax rate can be pushed down to zero% by deducing the interest. As for the companies earnings, maybe that money could be "reinvested" into the house (better WiFi), so that MIGHT just be as good as putting some money aside. Or you actually buy another house for renting out. Obviously it's a good idea to talk about this to a tax advisor. For me this is only a Gedankenexperiment ;-)
      - valzam 6y ago
        I suppose then there is the whole thing about a company having to have a profit motive to be treated as a company. Otherwise it's 'Liebhaberei' and any income/cost does not have an impact on your taxes. https://www.vlh.de/wissen-service/steuer-abc/liebhaberei-was-ist-das-und-werden-dafuer-steuern-faellig.html https://www.vlh.de/wissen-service/steuer-abc/liebhaberei-was... If you buy another house to rent out that might prevent this. But the other thing as well is who benefits from the houses? Because now your friend will own the house you like and vice versa. You probably cannot put in any provisions to ensure your friend will at some point get ownership of his house.
- iso1631 6y ago
  It can make sense to allow offsetting costs of housing (rent and interest) against income tax. That helps those who don't own large amounts of equity and have really high outgoings. However it also reduces the incentive to reapay mortgage capital at all (is that bad?) Currently if you have £500k in cash, you can either 1) Buy a house and pay no rent 2) Pay £1500 a month in rent Why would you pay £1500 a month in rent (which at a marginal rate of 40% means having to earn £3,750 a month, or £45k a year, extra in income. Effectively you get a 9% roi on that £500k by buying the house (ignoring house price inflation). Someone with £500k in cash and £50k a year is better off than someone with £0 in cash and £90k a year, despite the latter being nearly twice as valuable to the economy. Now in a situation where £1500 a month is tax free, you'd have to earn £18k extra a year, and that roi on house ownership drops to 3.6%, and that's good. Housing should be somewhere to live, not an investment. Of course on the flip side, the extra money available would likely push private rents and house prices up anyway. Perhaps the solution would be to ringfence the interest into some form of long term savings (either to use on buying a house, or to fund a pension).
  - archi42 6y ago
    Good points, thank you! I didn't mean to say that it's inherently bad - I am actually puzzled that here companies (who want to make money) can save at least some taxes on buying a house as an investment, while a private person has no such option. This doesn't seem like a fair market to me, as a company can ALWAYS out-compete a private buyer (assuming both having the same cash reserves). The flip side might be true, but I think it's not as easy. I have a meeting now, so I can't go into detail (and not think about the details; ergo you might still be 100% right!). But if private buyers - those who would rent - can more easily compete with companies on buying, companies need to make renting more attractive. But maybe that effect is negligible.
    - chii 6y ago
      it's the same situation where a company gets to pay tax on profits, but a human have to pay tax on revenue (their income). I want to see this equalized - either allow humans to pay tax on profits only (i.e., they can deduct all expenses of their living), or tax a company's revenue like how a human is taxed.
- tomatocracy 6y ago
  One justification for this is that the imputed "income" you get from being an owner-occupier (ie the rent you would have otherwise paid but saved) is not taxable. Although I don't know about Germany specifically, I suspect this is exactly the position you'd be in if you followed through with this plan - the company would have to pay tax on the rent. And you wouldn't be able to get around this by reducing the rent say to zero because it's a related party so the company would likely be taxed on an imputed market rent.
- bollorior 6y ago
  I think you have misunderstood how taxation works. If you rent out a house, the rent is income, which you are taxed on. The deduction means that you don't have to pay taxes on the gross amount, but only on the net income after you've paid the mortgage on the property. In almost all cases the rental income will be higher than the mortgage payment, so you will still pay some tax, more than the person who lives in a property they own with a mortgage.
  - adamjb 6y ago
    >In almost all cases the rental income will be higher than the mortgage payment 60% of Australian landlords claimed a rental loss in FY17/18 and that's not an outlier. [0] In jurisdictions where rental losses can be written off against ordinary income, landlords are happy to collect the tax benefit and just do the capital play. [0] https://www.theguardian.com/business/grogonomics/2020/jul/21/middle-australia-earns-100000-and-has-a-negatively-geared-property-not-true https://www.theguardian.com/business/grogonomics/2020/jul/21...
    - bollorior 6y ago
      I am prepared to accept that 'almost all cases' does not include the insanity particular to the frothiest 60% of the Australian housing market ;)
valzam 6y ago
The sad part is that all these tax gimmicks are there not because the state wants welfare but because they want to put up a free market charade. You don't directly encourage additional supply but 'let the market build housing' and support the demand side. It's the same here in Australia, the amount of shenanigans related to buying a house a insane. Of course this only drives up prices and leads to asset bubbles.
- megablast 6y ago
  Ridiculous population growth is what’s driving housing prices. This would be a problem if we were aiming at reducing the population.
  - agent008t 6y ago
    But the majority of European countries have negative organic population growth?
    - roel_v 6y ago
      That doesn't matter, what matter is demand for housing going up, which it does because due to net inflow, there is still a growing population; plus households get smaller (more people not partnering up or at least not living together, more divorces); and housing supply is geographically concentrated, those that are new to the EU don't want to live in the countryside of Romania or even the countryside of Germany, they want to live in or near cities, where everybody else also wants to live (and for the same reasons).
    - bandana 6y ago
      What matters is that the total population is growing, which push the prices up, I think mostly in already attractive and crowded cities ("Over a longer period, the population of the EU-27 grew from 354.5 million in 1960 to 447.7 million in 2020, an increase of 93.2 million people" https://ec.europa.eu/eurostat/statistics-explained/index.php/Population_and_population_change_statistics#Population_change_at_a_national_level https://ec.europa.eu/eurostat/statistics-explained/index.php...). That's 93 million people you have to house, and they are not going to the countrysides.
std_badalloc 6y ago
It's the same in Norway, and it seems completely indefensible. 1) It's the opposite of progressive taxation, since the tax deduction is higher the larger your mortgage is (and there's no deduction if you don't have a mortgage). 2) It artificially inflates housing prices. Overall, it's a shifting of cash away from those that want to enter the housing market towards those that are in it, i.e. taking from the poor and giving to the rich. The policy seems like an obviously indefensible mistake, yet no political party dears to touch it because the majority of voters are beneficiaries of it, and the topic is slightly too complicated for there to be an informed public debate about it.
- Vinnl 6y ago
  I think it's relatively widely recognised as a bad idea now, but the challenge is that people have made long-term financial plans based on it, and if you were to suddenly cancel it altogether, lots of people would probably get in trouble. They're imposing further restrictions on it in the Netherlands, but it's all gradual and slooooow. Disclaimer: I don't know much about this.
  - LudwigNagasena 6y ago
    > the challenge is that people have made long-term financial plans based on it, and if you were to suddenly cancel it altogether, lots of people would probably get in trouble This can be solved with a grandfather clause.
    - mattmanser 6y ago
      Which would make even more brutally regressive and unfair.
    - Vinnl 6y ago
      Possibly, but that means houses would suddenly become much more expensive for those not ushered in.
  - KSteffensen 6y ago
    We have the same problem in Denmark. It doesn't have to be cancelled suddenly, it could be removed over a period of 25 years or even more. Similar to what happens with public pensions.
bjornsing 6y ago
It’s more or less the same in Sweden. Another important difference compared to the US is that in Sweden you are more or less the bank’s serf. In many US states the home itself is the bank’s only collateral, and the homeowner can “walk away” if its value falls below the mortgage. In Sweden the bank can take everything you own, and even extract a share of your future earnings. Also there is no (quick) personal bankruptcy, only a slow process that takes years and where you have to show that you’ve payed as much as you possibly can. This lowers the bank’s risk and brings interest rates down. In Sweden you pay about 1-2% interest on a mortgage. In Denmark I think you can even get zero rate mortgages. This in turn of course incentives borrowing, since many people just look at the monthly cost of a home.
- AlgorithmicTime 6y ago
  US mortgage rates are just under 3%. So not that much higher than Sweden.
flexie 6y ago
It's more or less the same in Denmark, with the difference that interest payments for decades have only partially deductible, and that most home purchases include a 5 or 10 percent down payment.
Opinionator2021 6y ago
Yeah, overall Europe disincentivizes being above average through heavy taxation. Sort of explains absence of a local silicon valley.
_rebocador_ 6y ago
> banks in the Netherlands to advise households to borrow as much as they can on a 30 year mortgage, never pay down the debt and put everything in the stock market. You know banks are not in your side, with a unfixed rate that is just stupid to assume that in 30 years rates will always be low. That is why I payed 40 % of my house upfront, got a low 25 year debt with fix rate (it wasn't easy to find) negotiated now. I'm set for life, I'm paying 400 euros to the bank every month and I sleep well every night.
- tralarpa 6y ago
  If the bank makes such an offer to you (how much was it? 1%?), doesn't it mean that the bank expects that the interest rate will stay low for the next 10 or 15 years?
  - bluGill 6y ago
    No, the bank has hedged everything. As soon as the bank issued your mortgage they sold a few bonds at the current interest rate, they collect your payments and pay off the bonds. The bond holders are betting that stay low, not the bank. While in theory if rates go up you could find the bond for your house and buy it at a greatly reduced rate, thus paying much less for your house. In practice there is no individual bond for your house so you can't do this.
deleted 6y ago
[deleted]
adamlett 6y ago
Due to the full deductibility, the common narrative became: if you're in the top tax bracket, the state pays more than half your mortgate interest That’s not how it works in Denmark. Here, interest deduction come in the form of increased personal allowance (ie. the annual income bracket below which you pay no taxes), which favor high and low income earners equally. I’m surprised that isn’t also the case in The Netherlands. Are you sure it’s not?
- the-dude 6y ago
  Not OP, but Dutch nonetheless. We are pretty sure it is not, that is, the more you earn, the more you can deduct, starting with the highest brackets.
phicoh 6y ago
At the moment, interest rate on morgages are low enough that tax deduction doesn't make a big difference, in addition, The Netherlands has a special tax for living in your own house (fake income due to not paying rent), so these cancel each other out to some extent. The biggest issue at the moment is the shortage of house in most parts of The Netherlands. So people max out what they can spend on a house, and certainly with low interest rate that amount to quite a lot. As to fiscal reforms, at moment you get only a percentage of the interest you pay back, not the percentage of your highest income bracket. In addition, load need to be paid back in 30 years (linear or annuity) otherwise you don't get the tax credit. [(edit) one addition, it is interesting that in The Netherlands, the more right wing, conservative parties want to keep this tax deduction the most, the left wing parties want to get rid of it]
- bollorior 6y ago
  Imputed rent tax and mortgage tax deduction make sense together but not separately in my opinion. Mortgage tax deduction without tax on imputed rent (as in Norway, Sweden and the US) is a subsidy to those who are rich enough to own their own homes. It is also a perverse incentive in that if you pay off your mortgage, you lose the tax benefit. So people take larger mortgages than makes sense, and invest their spare cash in risky assets rather than paying their mortgages down. An imputed rent tax without a deduction for mortgage interest would be grossly unfair to borrowers, but does not exist anywhere as far as I know. An imputed rent tax with a deduction lightly taxes mortgage borrowers against the benefits they receive from owning not renting. It has a bigger effect on owner occupiers without mortgages - they pay the full tax without any deduction. So it is progressive. It also levels the playing field between landlords and owner-occupiers - both are taxed on the rental value of their property and receive (roughly similar) deductions. So neither form of ownership has a built-in advantage. (Probably the right wing parties want to remove the tax deduction because they also want to get rid of the tax on imputed rent?) As pointed out in the reply, this was a misunderstanding.
  - phicoh 6y ago
    The right wing parties want to keep the tax deduction. One thing they did introduce was that the imputed rent tax was limited to the interest tax deduction. To encourage people to pay off their mortgages, but that is now being rolled back. One thing is that killing the tax deduction is likely to lower the value of houses because people cannot borrow as much without the tax deduction. The elephant in the room in The Netherlands is not only the shortage of land to build new house but also what it costs to build a new house. You can lower prices by increasing availability, but only if the new objects are actually cheaper than what people pay now. Building a house in The Netherlands is insanely expensive. Some of it for good reasons, a building code that has lots of requirements. A large part of The Netherlands is effectively a swamp, so foundations are also very expensive. However, contractors, etc. make quite a bit of money, but the worse part is that local governments try to make money of land. To finance the city, but also to have regular house subsidize social housing.

by em500 6y ago

archi42 6y ago

Wait, what?! I recently checked if I can deduce some of the expenses from buying a house, but as long as I buy it myself to live there the state [Germany] says "screw you". If I bought it to rent it out, I could deduce some of the expenses. Now I need to figure out if it makes sensoe to start a housing company to buy a house and rent it out to myself so that I can deduce some of the expenses... (IANAL, but I suppose that might be tax fraud - OTOH I wouldn't be too surprised if it is not).

galuggus 6y ago
Would it be legal to partner with a friend and rent houses to each other ?
- valzam 6y ago
  The problem is that you need to charge market rate, which the state then taxes as income. I would think it's unlikely to save you money. (If you don't charge market rate the tax office will either assume it's a gift and tax the renter on the rent saved or assume a market rate for income tax purposes)
  - archi42 6y ago
    IANAL, but I did some research for Germany: Assuming you need a bank loan to buy your house (and assuming the bank plays along), it seems you're able to deduce the interest on the loan. Same holds for anything you perform to increase the value of the house (e.g. new roof). Now of course if the company pays e.g. 1000 Euro per month for the loan(s), it has to charge the tenants (=me & my SO) more than that plus taxes. The question is now if the effective tax rate can be pushed down to zero% by deducing the interest. As for the companies earnings, maybe that money could be "reinvested" into the house (better WiFi), so that MIGHT just be as good as putting some money aside. Or you actually buy another house for renting out. Obviously it's a good idea to talk about this to a tax advisor. For me this is only a Gedankenexperiment ;-)
    - valzam 6y ago
      I suppose then there is the whole thing about a company having to have a profit motive to be treated as a company. Otherwise it's 'Liebhaberei' and any income/cost does not have an impact on your taxes. https://www.vlh.de/wissen-service/steuer-abc/liebhaberei-was-ist-das-und-werden-dafuer-steuern-faellig.html https://www.vlh.de/wissen-service/steuer-abc/liebhaberei-was... If you buy another house to rent out that might prevent this. But the other thing as well is who benefits from the houses? Because now your friend will own the house you like and vice versa. You probably cannot put in any provisions to ensure your friend will at some point get ownership of his house.
iso1631 6y ago
It can make sense to allow offsetting costs of housing (rent and interest) against income tax. That helps those who don't own large amounts of equity and have really high outgoings. However it also reduces the incentive to reapay mortgage capital at all (is that bad?) Currently if you have £500k in cash, you can either 1) Buy a house and pay no rent 2) Pay £1500 a month in rent Why would you pay £1500 a month in rent (which at a marginal rate of 40% means having to earn £3,750 a month, or £45k a year, extra in income. Effectively you get a 9% roi on that £500k by buying the house (ignoring house price inflation). Someone with £500k in cash and £50k a year is better off than someone with £0 in cash and £90k a year, despite the latter being nearly twice as valuable to the economy. Now in a situation where £1500 a month is tax free, you'd have to earn £18k extra a year, and that roi on house ownership drops to 3.6%, and that's good. Housing should be somewhere to live, not an investment. Of course on the flip side, the extra money available would likely push private rents and house prices up anyway. Perhaps the solution would be to ringfence the interest into some form of long term savings (either to use on buying a house, or to fund a pension).
- archi42 6y ago
  Good points, thank you! I didn't mean to say that it's inherently bad - I am actually puzzled that here companies (who want to make money) can save at least some taxes on buying a house as an investment, while a private person has no such option. This doesn't seem like a fair market to me, as a company can ALWAYS out-compete a private buyer (assuming both having the same cash reserves). The flip side might be true, but I think it's not as easy. I have a meeting now, so I can't go into detail (and not think about the details; ergo you might still be 100% right!). But if private buyers - those who would rent - can more easily compete with companies on buying, companies need to make renting more attractive. But maybe that effect is negligible.
  - chii 6y ago
    it's the same situation where a company gets to pay tax on profits, but a human have to pay tax on revenue (their income). I want to see this equalized - either allow humans to pay tax on profits only (i.e., they can deduct all expenses of their living), or tax a company's revenue like how a human is taxed.
tomatocracy 6y ago
One justification for this is that the imputed "income" you get from being an owner-occupier (ie the rent you would have otherwise paid but saved) is not taxable. Although I don't know about Germany specifically, I suspect this is exactly the position you'd be in if you followed through with this plan - the company would have to pay tax on the rent. And you wouldn't be able to get around this by reducing the rent say to zero because it's a related party so the company would likely be taxed on an imputed market rent.
bollorior 6y ago
I think you have misunderstood how taxation works. If you rent out a house, the rent is income, which you are taxed on. The deduction means that you don't have to pay taxes on the gross amount, but only on the net income after you've paid the mortgage on the property. In almost all cases the rental income will be higher than the mortgage payment, so you will still pay some tax, more than the person who lives in a property they own with a mortgage.
- adamjb 6y ago
  >In almost all cases the rental income will be higher than the mortgage payment 60% of Australian landlords claimed a rental loss in FY17/18 and that's not an outlier. [0] In jurisdictions where rental losses can be written off against ordinary income, landlords are happy to collect the tax benefit and just do the capital play. [0] https://www.theguardian.com/business/grogonomics/2020/jul/21/middle-australia-earns-100000-and-has-a-negatively-geared-property-not-true https://www.theguardian.com/business/grogonomics/2020/jul/21...
  - bollorior 6y ago
    I am prepared to accept that 'almost all cases' does not include the insanity particular to the frothiest 60% of the Australian housing market ;)

valzam 6y ago

The sad part is that all these tax gimmicks are there not because the state wants welfare but because they want to put up a free market charade. You don't directly encourage additional supply but 'let the market build housing' and support the demand side. It's the same here in Australia, the amount of shenanigans related to buying a house a insane. Of course this only drives up prices and leads to asset bubbles.

megablast 6y ago
Ridiculous population growth is what’s driving housing prices. This would be a problem if we were aiming at reducing the population.
- agent008t 6y ago
  But the majority of European countries have negative organic population growth?
  - roel_v 6y ago
    That doesn't matter, what matter is demand for housing going up, which it does because due to net inflow, there is still a growing population; plus households get smaller (more people not partnering up or at least not living together, more divorces); and housing supply is geographically concentrated, those that are new to the EU don't want to live in the countryside of Romania or even the countryside of Germany, they want to live in or near cities, where everybody else also wants to live (and for the same reasons).
  - bandana 6y ago
    What matters is that the total population is growing, which push the prices up, I think mostly in already attractive and crowded cities ("Over a longer period, the population of the EU-27 grew from 354.5 million in 1960 to 447.7 million in 2020, an increase of 93.2 million people" https://ec.europa.eu/eurostat/statistics-explained/index.php/Population_and_population_change_statistics#Population_change_at_a_national_level https://ec.europa.eu/eurostat/statistics-explained/index.php...). That's 93 million people you have to house, and they are not going to the countrysides.

std_badalloc 6y ago

It's the same in Norway, and it seems completely indefensible. 1) It's the opposite of progressive taxation, since the tax deduction is higher the larger your mortgage is (and there's no deduction if you don't have a mortgage). 2) It artificially inflates housing prices. Overall, it's a shifting of cash away from those that want to enter the housing market towards those that are in it, i.e. taking from the poor and giving to the rich. The policy seems like an obviously indefensible mistake, yet no political party dears to touch it because the majority of voters are beneficiaries of it, and the topic is slightly too complicated for there to be an informed public debate about it.

Vinnl 6y ago
I think it's relatively widely recognised as a bad idea now, but the challenge is that people have made long-term financial plans based on it, and if you were to suddenly cancel it altogether, lots of people would probably get in trouble. They're imposing further restrictions on it in the Netherlands, but it's all gradual and slooooow. Disclaimer: I don't know much about this.
- LudwigNagasena 6y ago
  > the challenge is that people have made long-term financial plans based on it, and if you were to suddenly cancel it altogether, lots of people would probably get in trouble This can be solved with a grandfather clause.
  - mattmanser 6y ago
    Which would make even more brutally regressive and unfair.
  - Vinnl 6y ago
    Possibly, but that means houses would suddenly become much more expensive for those not ushered in.
- KSteffensen 6y ago
  We have the same problem in Denmark. It doesn't have to be cancelled suddenly, it could be removed over a period of 25 years or even more. Similar to what happens with public pensions.

bjornsing 6y ago

It’s more or less the same in Sweden. Another important difference compared to the US is that in Sweden you are more or less the bank’s serf. In many US states the home itself is the bank’s only collateral, and the homeowner can “walk away” if its value falls below the mortgage. In Sweden the bank can take everything you own, and even extract a share of your future earnings. Also there is no (quick) personal bankruptcy, only a slow process that takes years and where you have to show that you’ve payed as much as you possibly can. This lowers the bank’s risk and brings interest rates down. In Sweden you pay about 1-2% interest on a mortgage. In Denmark I think you can even get zero rate mortgages. This in turn of course incentives borrowing, since many people just look at the monthly cost of a home.

AlgorithmicTime 6y ago
US mortgage rates are just under 3%. So not that much higher than Sweden.

flexie 6y ago

It's more or less the same in Denmark, with the difference that interest payments for decades have only partially deductible, and that most home purchases include a 5 or 10 percent down payment.

Opinionator2021 6y ago

Yeah, overall Europe disincentivizes being above average through heavy taxation. Sort of explains absence of a local silicon valley.

_rebocador_ 6y ago

> banks in the Netherlands to advise households to borrow as much as they can on a 30 year mortgage, never pay down the debt and put everything in the stock market. You know banks are not in your side, with a unfixed rate that is just stupid to assume that in 30 years rates will always be low. That is why I payed 40 % of my house upfront, got a low 25 year debt with fix rate (it wasn't easy to find) negotiated now. I'm set for life, I'm paying 400 euros to the bank every month and I sleep well every night.

tralarpa 6y ago
If the bank makes such an offer to you (how much was it? 1%?), doesn't it mean that the bank expects that the interest rate will stay low for the next 10 or 15 years?
- bluGill 6y ago
  No, the bank has hedged everything. As soon as the bank issued your mortgage they sold a few bonds at the current interest rate, they collect your payments and pay off the bonds. The bond holders are betting that stay low, not the bank. While in theory if rates go up you could find the bond for your house and buy it at a greatly reduced rate, thus paying much less for your house. In practice there is no individual bond for your house so you can't do this.

deleted 6y ago

[deleted]

adamlett 6y ago

Due to the full deductibility, the common narrative became: if you're in the top tax bracket, the state pays more than half your mortgate interest That’s not how it works in Denmark. Here, interest deduction come in the form of increased personal allowance (ie. the annual income bracket below which you pay no taxes), which favor high and low income earners equally. I’m surprised that isn’t also the case in The Netherlands. Are you sure it’s not?

the-dude 6y ago
Not OP, but Dutch nonetheless. We are pretty sure it is not, that is, the more you earn, the more you can deduct, starting with the highest brackets.

phicoh 6y ago

At the moment, interest rate on morgages are low enough that tax deduction doesn't make a big difference, in addition, The Netherlands has a special tax for living in your own house (fake income due to not paying rent), so these cancel each other out to some extent. The biggest issue at the moment is the shortage of house in most parts of The Netherlands. So people max out what they can spend on a house, and certainly with low interest rate that amount to quite a lot. As to fiscal reforms, at moment you get only a percentage of the interest you pay back, not the percentage of your highest income bracket. In addition, load need to be paid back in 30 years (linear or annuity) otherwise you don't get the tax credit. [(edit) one addition, it is interesting that in The Netherlands, the more right wing, conservative parties want to keep this tax deduction the most, the left wing parties want to get rid of it]

bollorior 6y ago
Imputed rent tax and mortgage tax deduction make sense together but not separately in my opinion. Mortgage tax deduction without tax on imputed rent (as in Norway, Sweden and the US) is a subsidy to those who are rich enough to own their own homes. It is also a perverse incentive in that if you pay off your mortgage, you lose the tax benefit. So people take larger mortgages than makes sense, and invest their spare cash in risky assets rather than paying their mortgages down. An imputed rent tax without a deduction for mortgage interest would be grossly unfair to borrowers, but does not exist anywhere as far as I know. An imputed rent tax with a deduction lightly taxes mortgage borrowers against the benefits they receive from owning not renting. It has a bigger effect on owner occupiers without mortgages - they pay the full tax without any deduction. So it is progressive. It also levels the playing field between landlords and owner-occupiers - both are taxed on the rental value of their property and receive (roughly similar) deductions. So neither form of ownership has a built-in advantage. (Probably the right wing parties want to remove the tax deduction because they also want to get rid of the tax on imputed rent?) As pointed out in the reply, this was a misunderstanding.
- phicoh 6y ago
  The right wing parties want to keep the tax deduction. One thing they did introduce was that the imputed rent tax was limited to the interest tax deduction. To encourage people to pay off their mortgages, but that is now being rolled back. One thing is that killing the tax deduction is likely to lower the value of houses because people cannot borrow as much without the tax deduction. The elephant in the room in The Netherlands is not only the shortage of land to build new house but also what it costs to build a new house. You can lower prices by increasing availability, but only if the new objects are actually cheaper than what people pay now. Building a house in The Netherlands is insanely expensive. Some of it for good reasons, a building code that has lots of requirements. A large part of The Netherlands is effectively a swamp, so foundations are also very expensive. However, contractors, etc. make quite a bit of money, but the worse part is that local governments try to make money of land. To finance the city, but also to have regular house subsidize social housing.