Spanish Government prepares to abolish mortgage tax relief

A U-turn looks imminent as the Treasury Minister Cristóbal Montoro (pictured) all but confirms that mortgage tax relief will be eliminated, barely six months after it was re-introduced.

Spain’s Treasury Minister yesterday hinted that the PP Government in Madrid is close to eliminating mortgage tax relief, as recommended by many international bodies, barely six months after his own party reintroduced the tax relief shortly after winning the last election. Montoro said it is just a question of “finding the right time” to eliminate it.

Which begs the question, why did the PP reintroduce the tax in the first place, in the face of abundant international criticism? As I wrote here back in November last year, it was easy to see the folly of bringing back a tax-break that distorts the housing market and helped blow up Spain’s property boom.

For example, re-introducing mortgage tax relief is the PP’s flagship policy, but abolishing it was about the only sensible thing the Socialists ever did. What Spain needs is more affordable housing (lower prices) and more families renting, not public subsidies for buyers at the expense of everyone else.

This is what happens when you encourage home-ownership through the tax code (owner-occupiers in blue, rental in red). You destroy the rental market. Back in 1970 about a third of Spaniards lived in rented accomodation; now its less than 10pc.

I guess it was a populist measure designed to win support from hard-pressed homeowners in the runup to the election. Soon it will be just another broken electoral promise, and might put further downward pressure on house-prices.

But mortgage tax relief never applied to holiday homes, so the effect on holiday-home prices will be limited.

The Government is also reported to be looking at giving residency permits to non-EU nationals who buy homes worth more than 250,000 Euros.


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