The Spanish government has announced its intention to discontinue mortgage tax relief starting in 2011. Experts warn that, on average, this will add another 22,000 Euros on to the overall cost of buying a home in Spain.
Mortgage tax relief makes mortgage repayments tax deductible, reducing tax bills and leaving more money in the pockets of borrowers. At present borrowers can deduct 15% of their mortgage payments up to an annual limit of 9,015 Euros, giving a maximum annual saving of 1,352 Euros. The average saving in 2007, the last year for which figures are available, was 900 Euros. Given average mortgage terms of 24 years, the cost of using a mortgage to buy a home in Spain will go up by more than 21,000 Euros over the lifetime of the loan.
Mortgage tax relief is only available for loans on primary residencies, so holiday home and non-resident buyers will not be directly affected. But to the extent that this move puts a further strain on the housing market, there may be a knock on effect on the sale of holiday homes, which could be adversely affected.
Note that so far the government has only announced its intention to cut mortgatge tax relief from 2011, and some experts doubt the govermment will have the political will to go through with it when the time comes. Given that stock of unsold homes is expected to keep growing through 2010, “it will be very difficult to take a step that discourages buying right at the time when there are more empty houses then ever,” one expert told the Spanish press.
The government already plans to hike VAT on new homes next year. This is expected to increase the cost of the average new home by 2,000 Euros.