Czech finance minister proposes mortgage tax perk for under-36s

Czech Finance Minister Schillerová proposes raising the tax deduction limit on mortgage interest by 50,000 crowns for people under 36. Economists believe this will not make housing broadly more affordable.

“I want the proposal to be adopted as early as 2027,” Schillerová said of the timing of the planned change on the Nova TV channel.

How the deduction works and what will change

People repaying a mortgage can deduct the interest they have paid from their tax base, but not the borrowed amount itself. For now, the state caps the deduction at 150,000 crowns, or 300,000 for contracts signed before 2021. Under the minister’s proposal, the limit for people under 36 could rise by 50,000.

While at the maximum deduction people can currently save 22,500 crowns a year, under the new rules the saving could grow by another 7,500. The perk will be usable for one contract only. According to the Ministry of Finance, the impact on the state budget would be roughly 800 million crowns. For comparison, the ministry’s spokeswoman Hana Skácelová said that in 2023, the latest year with available data, the deduction of interest on housing loans reduced state budget revenues by 7.9 billion crowns.

According to Skácelová, the change would benefit mainly those who are already repaying a mortgage or are considering taking one out and meet the conditions for getting it. Those conditions are already more lenient for people under 36: banks lend them up to 90 percent of a property’s value, and everyone else up to 80 percent.

What economists say

Unaffordable housing is a particular worry for young people. They usually do not have the hundreds of thousands of crowns in savings needed to get a mortgage and have to rely on support from their parents.

According to Vít Hradil, chief economist at Investika, those who take out a loan among the first will benefit most from the proposal. “But it would come at the expense of others. Taxpayers will pay for it, and other people will face more expensive property,” he warned, pointing to the risk that property prices may rise in response to the change.

Economists approached by Novinky agree that although the minister’s proposal may help some people, it will not improve housing affordability across the board. “It is a small concession, but it will not be free,” said Petr Dufek, chief economist at Banka Creditas.

Mortgages are currently getting more expensive mainly because of the conflict between the US and Iran, which raises fears of faster inflation. Since the start of the American strikes at the end of February, the average mortgage payment in Czechia on a loan of 3.5 million crowns over 25 years has risen by as much as 22,000 a year.

Read also: Mortgage in Czechia for a foreigner: who gets approved and how much of your own money you need

Around Prague, based on reporting by novinky.cz