As part of a raft of useless gestures to deal with the economic crisis, José Luis Rodríguez Zapatero, Spain’s Socialist Prime Minister, has announced that mortgage relief will be eliminated on mortgages taken out after 2011 by borrowers with incomes of 24,000 Euros or more.
The measure is supposed to stimulate the housing market by giving buyers a reason to bring forward their purchase, rather than wait and potentially lose their right to mortgage relief.
If it were to succeed, this would help mop up Spain’s housing glut of 1 million new homes, and eliminate a fiscal incentive to buy rather than rent, something that organisations like the IMF and OECD have been calling for for some time.
Zapatero announced the measure during the annual state of the nation debate in Parliament this week as a way to deflect attention from Spain’s economic problems. In typical Zapatero style it was presented as a ‘progressive’ measure that only hits ‘high earners’.
In reality, however, the plan hits the middle class, and given property prices and incomes in Spain, will affect almost anyone with enough money to buy a home. Mortgage relief will be reduced after 17,000, and eliminated after 24,000 Euros income per annum.
The opposition leader Mariano Rajoy called it an “attack on the interests of the middle classes” and said his party would retain and increase mortgage relief to stimulate the market.
Developers have criticised the plan, calling it a negative stimulus. Though it may help them shift some stock in the short run, it will harm them in the long run, reducing the incentive for people to buy homes from developers.
Some experts are claiming that banks will be the biggest, and possibly only beneficiaries of this measure. “The banks are the ones with the key to financing and with the cheapest property,” Eduardo Molet, President of the Network of Property Experts, told the Spanish press. “But thinking that the banks will sell their stock rapidly is a mistake, as their product isn’t exactly the best,” Molet points out.
Mortgage relief in Spain is only available to residents with mortgages on their primary residence. As such, Zapatero’s plan will have little impact on the second home market on the coast. Nevertheless, it could affect Britons and other foreigners relocating to Spain and buying a main home with a mortgage, if they have incomes above 17,000 Euros per annum.
Eliminating mortgage relief does little to address the real problem of the Spanish property market, namely that too much inappropriate, unattractive, and overpriced property has been built, especially on the coast.
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