Mortgage to remain exempt from tax

Those considering owning a home in the next few years have gotten a break, albeit a smaller one, as Finance Minister Miroslav Kalousek has agreed to keep the tax deduction for mortgage interest payments.

Under his original proposal, part of a larger tax reform plan, deductions for interest paid on mortgage payments were to be canceled for new contracts as of 2012, and the maximum deduction for existing mortgages would be lowered to 150,000 Kč ($8,955) per year. Under the new proposal, deductions will not be phased out, but they will be capped at 80,000 Kč. The current cap is set at 300,000 Kč.

Kalousek announced the adjustment May 8 while a guest on the Václav Moravec television show, citing political will from the coalition to leave this particular exemption. He remains committed to whittling away as many other tax exemptions, however, adding he hopes to eliminate nearly a quarter of the current 118 tax exemptions. Kalousek has said eliminating many of the exemptions will help keep income tax rates lower.

Exemptions still on the chopping block include meal and transit tickets that are offered through employers; in exchange, employees will simply receive an annual 3,000 Kč tax reduction.

Mortgages continue to grow at a fast pace, but the market is still relatively small compared with the EU average. Total mortgage loans made up 19 percent of GDP in 2010, while the EU average was 50 percent of GDP in the same year, according to a report by the Global Guide. Interest rates have favorably affected the market, and in January 2011 the average housing loan rate was down to 4.53 percent. In the first quarter of this year, mortgage lending hit a three-year high of 22 billion Kč, according to the daily Hospodářské noviny.

Josef Malíř, managing partner at Star Capital Finance, said it's uncertain if the trend will continue, and added that a majority of the volume had to do with existing mortgages that had been restructured rather than new loans.

"People are still afraid of the recession, even if it's irrational," he said. "There are a lot of unqualified fears that the recession is still here."

UniCredit is one of many banks trying to bring in more customers while interest rates are low, announcing April 20 they would offer a mortgage with an interest rate of 2.5 percent through May.

"The Czech mortgage market is currently in a period that will ... be regarded as an era with some of the lowest interest rates," said Tomáš Drábek, director of the retail marketing segment of UniCredit Bank.

- Cat Contiguglia contributed to this report.          

Claire Compton can be reached at
ccompton@praguepost.com