Interests and tax deductions, premises of mortgage development

At the beginning of the ’80, many countries from the European Union didn’t have a developed mortgage credit market. The situation faced by some states can be compared with the one from Romania. However the low interests, next to the economic increase and some fiscal incentives had an important contribution in the expansion of the housing loans. So, the mortgage market has doubled in less then 15 years.

The mortgage credit market from our country is one of the less developed from Europe. At the end of last year, the value of the housing credits represented only 3,5% of the gross domestic product. And till the end of this year, the weight could increase up to about 4,5%, in conditions in which the monthly rate recorded during January – April (an average of 3,5% monthly) will maintain also in the next period. However, the difference against the other states remains relevant. For example, in Bulgaria, the weight of the housing credits was of about 7% from the GDP, while in Poland the level was of 10%, and in Hungary was close to 15%. Moreover, the average from the entire European Union was of 50%, the data published by the Polish institute of research Intelace, show.

However, the analysts of the UniCredit group estimate that till 2010, the mortgage credit market from our country could extend with at least 35%. The Italian analysts place Romania, next to Turkey and Russia, in the second development wave of the housing credit segment. In this rhythm, the mortgage credits could reach to represent about 6,2% from the gross domestic product. Just that in order to catch up the European average level, the annual rhythm of increase of 35% should maintain at least till 2020.

A study published by the central bank of Slovakia reveals the fact that a plurality of economical terms directed to the development of the mortgage credit market. One of the decisive factors is considered to be the decrease of the interests and as a result of the introduction of the European single currency. For example, in Spain, at the beginning of the ‘90s, the average interest of mortgage credit was of 15%. And till 1996, the index decreased below 7%. Also at that time, the mortgage credit financed maximum 80% of the value of the house (loan to value), being granted on a period of up to 15 years, the study of the central bank from Slovakia also reveals. In Romania, the effective annual interest rate, afferent to a mortgage credit in euro was of 8,36%, while the total cost of a financing in lei was of 9%, according to the data published by the National Bank of Romania.

Concomitantly, another premise which is considered to be an important factor for developing the Western Europe mortgage market is represented by the direct or indirect incentives given by the state. Many European governments have encouraged the increase of the level for house ownership through fiscal deductions. A survey carried on by the European Mortgage Federation in 1998, reveals the fact that the fiscal deductions were used at large scale in the Western Europe. For example in Greece, the afferent interest to a mortgage credit can be totally deduced from the ratable income, but just in case of the first property. In Spain, the population could reduce from the annual taxes maximum 20% (25% in the first two years) representing interests and capital, but without the total sum to exceed about 4.500 euro (at that time - 750.000 pesetas). In the same time, the sums that exceeded this limit were deductible in the limit of 15%. And this type of fiscal advantages has decreased both the price of a mortgage credit and the credit risk. In case of our country, if the rate afferent to a mortgage credit would be fully deducted from tax on income, then the budget would lose in 2008, less then 0,45% from the GDP. And this if we take into account an interest of 10%, applied on a term of 30 years at the mortgage credit balance estimated for the end of 2008. Moreover, at the same interest, the budget would lose less then 1,2% till the mortgage credit balance would reach at the equivalent of 100 billion lei (for a rhythm of increase of 35%, the limit could be touched about in 2013).