Dutch housing market
- Approximately 650 bln
- Annuity mortgages only
- Low default ratio
- Firm industry regulations
In the current low-interest rate environment, demand for Dutch mortgages is increasing. Dutch mortgages are well-known as an asset class with particular features such as low defaults and long-term fixed interest rates on the one hand and relatively high loan to values (LTV’s) on the other hand.
After a period of house price declines, the Dutch housing market has turned the corner and is now experiencing a period of house-price increases, mainly driven by increasing purchasing power, stable economic growth and low interest rates. The total outstanding amount of residential mortgage debt is approximately € 650 billion.
Driven by the particular fiscal system in the Netherlands, the loan-to-value (LTV) and loan-to-interest (LTI) ratios in the Dutch mortgage market are relatively high, with the LTV being one of the highest in Europe. These ratios notwithstanding, the strong payment moral of Dutch borrowers, the very strong social safety net, the low percentage of defaulters and firm industry regulations make for a minimal credit risk.
In addition, consumers can apply for a so called NHG guarantee (the Nederlandse Hypotheek Garantie or NHG which in principle is a Dutch government backed guarantee) that covers the full* loan amount plus interest and expenses in case of foreclosure.
As one of the few markets in Europe, the Dutch mortgage market is mainly a fixed rate market. Dutch consumers typically fix the interest rates on their mortgage loans for periods of up to 30 years. Particularly in the current interest rate environment, many consumers select fixed rate interest periods of 10 – 20 years. On the other hand, most products allow for penalty free prepayment of 10 - 20% of the original loan amount per year, or in case the property is sold or the borrower deceases.
Returns on residential mortgages are above average within the Dutch and European property investment asset classes. Combined with low investment risks, they provide an attractive alternative to government bonds. A key consideration in this respect is the lower liquidity. However, with Dutch mortgage loans becoming more standard as a result of the recent regulations and the interest of many investors, Dutch mortgage loans are becoming more commoditized and as a result more liquid.
* In 2014 a first loss of 10% for mortgage providers was introduced in the NHG guarantee scheme.