Netherlands House Prices Drop 8% for a Second Consecutive Month

House prices in the Netherlands, the euro area’s fifth-biggest economy, declined by 8 percent for a second straight month as uncertainty persisted about further cutting back of mortgage-tax breaks.

Prices fell 8 percent in August from a year ago, after a falling the same amount in July, which was the biggest drop since the index started in 1995, national statistics agency CBS, based in The Hague, said on its website today.

Values have fallen almost 16 percent from a 2008 peak and the Dutch economy will probably shrink 0.5 percent this year. Consumer confidence in June reached its lowest level in nine years. The Dutch Liberal and Labor Parties are seeking to form a cabinet after winning a majority in parliament during general elections on Sept. 12.

One of the key discussions to a form a government will be about tax deductions for mortgages, Benoit Petraque, an analyst at Kepler Capital Markets in Amsterdam, said in a Sept. 17 note. The public is eager to see some change in deductibility, Petraque said. The Liberals oppose any changes, while Labor favors reform, he added.

House prices will continue to drop in 2012 and 2013, Dutch government planning agency CPB said on Sept. 18. The plunge from the 2008 peak was partly caused by expectations a mortgage interest tax break will be reduced, the agency said.

As of next year, the interest payments on new mortgages can only be deducted from taxable income if the loan is fully paid within 30 years. The change was part of a budget agreement reached between the caretaker government of Liberal Prime Minister Mark Rutte and the opposition in April.

Cabinet Formation

The Liberals and Labor, which didn’t back the accord, will be able to change budget policy if they succeed in forming a cabinet as they jointly hold 79 of 150 seats in parliament’s lower house.

The Netherlands’ mortgage debt is among the world’s highest, amounting to 110 percent of gross domestic product, according to the central bank. A 500 billion-euro ($650 billion) difference between outstanding loans and retail savings at banks makes lenders reliant on market funding, it said.

To contact the reporters on this story: Martijn van der Starre in Amsterdam at vanderstarre@bloomberg.net; Maud van Gaal in Amsterdam at mvangaal@bloomberg.net

To contact the editors responsible for this story: Mariajose Vera at mvera1@bloomberg.net; Frank Connelly at fconnelly@bloomberg.net

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