Aug. 21 (Bloomberg) -- House prices in the Netherlands, the fifth-biggest economy in the euro area, dropped in July by the most since the index started in 1995.
Prices declined 8 percent from the same month a year earlier, after falling 4.4 percent in June, national statistics agency CBS in The Hague said on its website today. Values have fallen 15 percent from a peak in 2008 and are back to about the same level as eight years ago, CBS said. Prices had already dropped 5.5 percent in May from a year earlier.
The Dutch Central Bank forecast in March that house prices will continue to drop through 2014 because of stricter mortgage lending rules and a reduction of a homeowner tax break that spurred the lending boom. Values may fall another 5 percent next year, ING Groep NV economists said in a note Aug. 9.
Most political parties, gearing up for elections Sept. 12, want to cut back the homeowner tax break further in some form. The Socialist Party, leading in two out of three major polls, is seeking to abolish it for houses that cost more than 350,000 euros ($434,000). As of next year, the interest payments on new mortgages can only be deducted from taxable income if the loan is fully paid back within 30 years, under an agreement reached between the caretaker government of Prime Minister Mark Rutte and the opposition in April.
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 difference between outstanding loans and retail savings at banks makes lenders reliant on market funding, it said.
Earlier this month, ING reported pretax profit excluding one-time items in its Dutch banking unit fell 28 percent to 233 million euros in the second quarter after higher loan loss provisions and pressure on savings margins. The bank, the second-biggest Dutch mortgage lender after Rabobank Groep, set aside 161 million euros for doubtful loans, up from 90 million euros a year earlier. The mortgage portfolio was affected by lower house prices, driving up risk costs, ING said on Aug. 8.
A “further decline in Dutch house prices and increase in unemployment would lead to higher risk costs on mortgages, but we do not expect a dramatic increase,” Chief Executive Officer Jan Hommen said in a presentation to analysts.
To contact the editor responsible for this story: Stephen Foxwell at email@example.com