Stricter Nibud standards will limit price recovery on the Dutch housing market in 2015
- The new Nibud standards for maximum debt-to-income limits will limit the recovery in house prices in 2015.
- Financing capacity in 2015 will be hardly lower than that in 2014 due to the lower average mortgage interest rate.
- The new standards are based on the negative trends in purchasing power among single-income households.
- Double-income households consequently see the maximum mortgage they can take out unfairly reduced; their purchasing power remains the same or even rises.
Stricter standards limiting price recovery in 2015
The new debt-to-income (DTI) standards set by the National Institute for Family Finance Information (Nibud) are stricter than we had expected. The negative impact this will have on price movements of existing housing will be above all due to the lower financing capacity of those on middle incomes. For 2015 we expect an average price rise of 1½-3½% compared to 2014 (Rabobank 2014). This stricter standard has increased the likelihood that price rises will remain stuck at the lower limit of +1½%. If mortgage interest rates rise more sharply next year than we expect, there is a risk that price rises will turn out to be even smaller.
Effects of the new Nibud standards according to income groups
If mortgage rates remain unchanged, depending on the level of income the financing capacity of households will fall significantly due to the revised mortgage payments limits (referred to as financieringslastpercentages). For incomes below € 20,000 the fall in the maximum mortgage amount may even exceed 17%. Incomes for this income group, however, are usually too low to buy a house, and so this has virtually no effect on the owner-occupied housing market.
The situation is different among middle incomes (€ 30,000 to € 50,000). The tighter lending standards are restricting the financing capacity of this group. If mortgage rates remain unchanged, their financing capacity will decline by a good 8 percent next year. This exerts downward pressure on house prices as a large segment of this income group finances the purchase of a house with a sizeable or maximum mortgage. We see a similar decline in financing capacity among the high incomes (from € 70,000). For them, however, the maximum mortgage sum is of lesser importance; only a small percentage of this group takes out a maximum mortgage.
Falling interest rates partially compensate for the stricter standards
Falling mortgage interest rates during recent months provide some compensation for the increasingly strict rules for the financing capacity in 2015. Assuming our expectations for the capital market interest rates during the coming twelve months, we see that the average maximum mortgage for all income groups will be lower in 2015 than in 2014 (table 1). Since average mortgage interest rates are expected to be lower in 2015 than in 2014, the effect of the stricter standards will however be less severe than if mortgage rates would have remained unchanged; for incomes of € 50,000 the financing capacity will on average fall not by the 8% mentioned above, but by 2% from € 226,000 to € 221,000. The interest rates required to avoid a decline in financing capacity are 3.6%, 3.8% and 3.55% for incomes of € 30,000, € 50,000 and € 70,000 respectively.
Adjustment to tables for two-income households would seem sensible
The development of the Nibud standard is linked to changes in purchasing power among single-income households without children. The scaling back or ending of tax allowances will mean that this group will see its purchasing power decline in 2015. The CPB Netherlands Bureau for Economic Policy Analysis confirms that this group will suffer a fall in purchasing power next year (figure 1; CPB, 2014).
Median purchasing power for all households in the Netherlands will however rise in 2015, according to the CPB, by an average of 0.5%. The majority of current house buyers are double-income households (78%). Their purchasing power will remain at the same level or rise slightly in 2015. These households are therefore seeing the maximum mortgage they can take out unfairly reduced. The Nibud also observes that differences in purchasing power do arise between single-income and double-income households over time. For this reason the borrowing capacity of double-income households had already been increased in a single step in 2012 by including one-third of the second income when calculating the finance charge burden. The Nibud does not rule out the need for a further adjustment in the future, in order to take account of trends in the purchasing power of double-income households. However, this process still has to get underway.
New Nibud standards determine lending capacity
For calculating the maximum mortgage compared to income, the Minister of Finance, advised by the National Institute for Family Finance Information (Nibud), sets each year in the Interim Scheme for Mortgage Loans Act (wet tijdelijke regeling hypothecair krediet) the finance charge rates for the various income categories and interest rates. The finance charge rate is the maximum percentage of a household's income that it may spend on gross mortgage payments.
 The purchasing power of single-income households with or without children will be (rounded off) more or less the same (-2%).
 Rabobank calculation based on the WoON2012 of BZK/CBS.
CPB (2014), Macro Economische Verkenning 2015.
Nibud (2014), NIBUD: hypotheeknormen 2015 lager dan 2014.
Rabobank (2014), Dutch Housing Market Quarterly November 2014.
Central government (2014), Tijdelijke regeling hypothecair krediet.