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Dutch housing market: slowly but surely, more homes move into positive equity

Economic Comment

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  • An estimated 165,000 households moved into positive equity last year
  • Due to higher house prices and additional repayments
  • The number of households with negative equity is forecast to return to the 2008 level by 2019

More households in positive equity due to higher prices and repayments

The recovery in the housing market is bringing more households into positive equity. In other words, more owner-occupied homes now have a value that is higher than the amount of the mortgage that they secure. Currently, around 900,000 households have a mortgage debt that is higher than the value of their property. Last year, this number was estimated at approximately 1.07 million. Compared to the first quarter of last year, the number of households with negative equity has fallen by around 15%, due to rising house prices and a reduction in mortgage debt. House prices in the first quarter of this year are up by 2.4% compared to the first quarter of 2014. In addition, homeowners made extra repayments and reduced their mortgage debt (Treur, 2015).

Households slowly but surely emerge from negative equity

In June 2014, we published an economic report describing the method we used to estimate the ability of households in a situation of negative equity to recover. We have now updated this estimate in the light of the current figures. Our base scenario for the medium to longer term is that house prices will rise on average by 2% and that the current trend of increased repayments by homeowners will continue. In this scenario, in 2019 the number of households in negative equity will be the same as before the crisis: around 450,000 households, or roughly 13% of homeowners (see table 1). 

Table 1: Number of households with negative equity, base scenario
Table 1: Number of households with negative equity, base scenarioSource: BZK/CBS, WoON2012, Rabobank

Relatively large group with small residual debt

Figure 1 shows the level of equity in owner-occupied households with a mortgage in the first quarter of 2015 throughout the Netherlands, amounting to 100%. The orange section shows the negative equity of households: in total 25%, and estimated at approximately EUR 45 billion. The blue section shows the households with positive equity: 75%, amounting to around EUR 620 billion. The orange peak at 4.9% shows that a large group of households have negative equity of between EUR 10,000 and EUR 20,000 (approximately 175,000 households). This group will thus return to positive equity given a relatively modest rise in house prices.

Figure 1: Distribution of equity in housing in the Netherlands
Figure 1: Distribution of equity in housing in the NetherlandsSource: BZK/CBS, WoON2012, Rabobank

Larger price rises will help more households into positive equity

If we see a larger rise in house prices or additional mortgage repayments, the number of households with negative equity will of course fall faster.[1] If house prices rise by 4% instead of 2%, a further 190,000 households or so would move into positive equity instead of 140,000. This would leave around 20% of households in a situation of negative equity (figure 2). This percentage will thus remain relatively high in the coming years, even if house prices rise faster than we expect.

Figure 2: Percentage of households in negative equity with three scenarios
Figure 2: Percentage of households in negative equity with three scenariosSource: BZK/CBS, WoON2012, Rabobank

Foot note

[1] Note of course, that if house prices fall in the coming years (which we do not expect) then more households will fall into negative equity. Additional repayments will in this case probably not be enough to compensate for lower house prices.

Literature (Dutch only)

Treur, L. (2015). Totale hypotheekschuld licht gedaald in 2014 – ondanks aantrekkende woningmarkt.

Vries, P. de (2014a). Herstelvermogens van huishoudens die onder water staan.

Vries, P. de (2014b). Onderwaarde en doorstroming op de woningmarkt.

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Author(s)
Pieter van Dalen
Rabobank KEO
+31 30 21 2666
Paul de Vries
RaboResearch Netherlands Rabobank KEO
+31 30 21 62666

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