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Sustained growth in the Dutch housing market

Dutch Housing Market Quarterly

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  • The Dutch housing market experienced a strong first six months of 2015. Year-on-year sales rose by almost 20% and house prices by 2.5%
  • For this year, we expect between 170,000 and 185,000 transactions. The market will maintain this high level in 2016 and we expect a total of between 170,000 and 190,000 transactions
  • Average house prices are expected to rise in 2015 by between 2 and 3½% compared to 2014. In 2016 we expect further average rises of between 2½ and 4½%
  • We believe that the improved economic situation, low mortgage rates and high levels of confidence will have a greater effect than the factors restricting growth, such as the residual debt problem and credit restrictions
  • Regions outside the Randstad are also experiencing growth, following the national recovery

Summary

Economic recovery positive for the housing market

The Dutch economy grew by 0.6% in the first quarter of 2015 compared to the preceding quarter, when the economy grew by 0.9%. Although the weak growth in GDP in the second quarter was most likely due to a decline in gas production, we expect the Dutch economy to grow this year and next by 2%. A particularly positive development for the housing market is the fact that employment is picking up and purchasing power is rising.

Further growth expected in the housing market

We expect 2015 and 2016 to see further growth in the owner-occupied housing market. Stimulating factors, such as higher economic growth, high levels of consumer confidence, low mortgage interest rates and the substantial number of new homes sold are expected to have a greater effect than the restricting factors, such as the residual debt problem and credit-restricting measures. We anticipate a rise in the number of sales of existing homes from 153,000 in 2014 to 170,000-185,000 in 2015. For 2016 we expect the housing market to maintain this level, but anticipate little or no growth throughout the year. Approximately 170,000 to 190,000 transactions are therefore to be expected. Rising demand for owner-occupied homes is putting a squeeze on the number of homes on the market and causing the average house price index to rise, which is expected to be between 2 and 3½% in 2015 and between 2½ and 4½% in 2016.

Recovery in all provinces

Although there are significant regional differences in the Netherlands, the housing market is growing in all provinces, as reflected in the rising number of transactions and house prices in each province on an annual basis. Prices are rising faster, though, in the major cities compared to more rural areas.

Mortgage interest rates remain low

During the first quarter of 2015 the total mortgage debt rose by EUR 1.3 billion. We expect this total mortgage debt to continue to rise this year and next, partly as a result of the expected rise in the number of new mortgage approvals. We do expect, though, that households will make extra repayments on their mortgages while interest rates on savings are low. Although there will be a slight upward pressure caused by rises in capital market interest rates, we do expect mortgage rates to remain low in 2015 and 2016.

Chapter 1: Economic background

Dutch Gross Domestic Product (GDP) rose during the first quarter of 2015 by 0.6% compared to the previous quarter, when the economy grew by 0.9%. We expect the Dutch economy to grow this year and next by 2% (Table 1). The recovery on the housing market, growth in employment and rising levels of purchasing power are fuelling the recovery of domestic consumer spending. Significantly lower gas production has restricted growth in GDP this year, just as in 2014, and therefore masks the actual strength of the economic recovery.

Table 1: Key figures for the Netherlands
Table 1: Key figures for the NetherlandsSource: Statistics Netherlands, Rabobank

Exports continue to be the main driving force for growth

Export volumes rose in the first quarter of this year by 1.1% compared to the preceding quarter. We expect exports in the coming quarters to continue to make a positive contribution to the growth of GDP. The weak euro against the US dollar and the British pound is also boosting exports. Growth in the rest of the Eurozone is also expected to continue, benefiting Dutch exporting firms. However, these favourable forecasts are being tempered by some potential risks on the horizon to do with geopolitical developments, particularly the situation surrounding Greece. An escalation could potentially affect confidence, and with it have adverse consequences on production and exports in the Netherlands.

Domestic expenditure on the rise

Last year, private household consumption contributed hardly at all to economic growth. We do, however, expect to see a clear growth in consumption this year and next. Increases in real wages and rising employment are the main factors generating higher growth in consumption this year. Trends in consumer confidence have also been positive for some time now. Although confidence in the general economic situation did fall slightly in July due to the situation in Greece, the view of consumers of their own financial situation and willingness to buy did improve. In addition, the attitude of the Dutch consumer towards making major purchases has gradually improved over the past two years (Figure 1). For 2016 we anticipate lower growth in real wages as inflation rises again. Even so, we expect further growth in private consumption, as households relax their focus on saving and employment is expected to rise further.

The fact that the desire to save is expected to stabilize is partly due to the fall in the number of households in negative equity, thanks to earlier debt repayments and rises in house prices. In addition, the higher number of house sales has had a positive effect on the consumption of household durables, such as furnishings and fittings and electrical appliances. It is clear from the relationship between activity on the housing market and the consumption of durables in the past that a rise in the number of house transactions by 10% in a particular quarter, with a slowdown in a number of quarters, leads to a rise in this consumption of durables by 0.8% (Giesbergen, 2015a). Although we did observe a negative spiral in the crisis years between the developments on the housing market and the economy, since last year these have actually been having a positive effect again on each other.

Figure 1: Increasingly favourable time for large purchases
Figure 1: Increasingly favourable time for large purchasesSource: Statistics Netherlands
Figure 2: Unemployment trends
Figure 2: Unemployment trendsSource: Statistics Netherlands

Limited fall in unemployment

Since the second half of 2014, unemployment has fallen only slightly (Figure 2). Although employment has indeed grown, we are not seeing equivalent falls in unemployment levels, one reason being an equally large rise in the number of people seeking work. The new Work and Security Act (Wet Werk en Zekerheid) has given rise to various changes to employment termination law with effect from 1 July (see also: Smid, 2014). No anticipatory effects had been evident up to June as regards the number of dismissal requests recorded by the Employee Insurance Agency (UWV) and the subdistrict courts. There was, however, a sharp rise in June itself. This peak can therefore probably be attributed to the effect of the legislative changes and may temporarily disrupt the anticipated fall in unemployment. On balance, we are assuming for this year and next a modest fall in unemployment. Labour market indicators, such as the rise in the number of vacancies and hours worked through temporary employment agencies support this expectation. The number of vacancies rose in the first quarter of the year, for the seventh quarter in a row. 

Author
Björn Giesbergen

Chapter 2: Market for existing owner-occupied homes

During the second quarter of 2015, 40,722 existing owner-occupied homes changed ownership. Seasonally adjusted, this is a rise of around 10% compared to the previous quarter. Following the end-of-year rally caused by the temporary relaxation of the gift tax exemption, the number of transactions fell in the first quarter of this year, but figures for the second quarter show that the upward trend in the housing market is holding firm (Figure 3).

Figure 3: Rise in sales and house prices
Figure 3: Rise in sales and house pricesSource: Statistics Netherlands, Land Registry, computation Rabobank

With reduced availability on the market, low mortgage rates and a rise in incomes, house prices rose in the second quarter by 1% compared to the first quarter (Figure 3). The increase in the number of transactions and house price rises were evident in every province in the Netherlands. Following the catch-up growth of last year and the increase achieved during the first half of this year, the Dutch housing market is expected to continue to grow through the remainder of 2015 and into 2016. Factors pointing to further growth are high levels of confidence, low mortgage rates and the general economic growth. The residual debt problem and the tightening up of credit standards will limit this growth, but we expect these factors to have less of an effect. 

2.1 National trends and expectations

Strong first half of 2015

The Dutch housing market performed strongly during the first half of the year. 75,429 existing owner-occupied homes changed ownership, an increase of almost 20% compared to the same period in 2014. The total number of transactions during the past four quarters reached 166,000 (Figure 4), a considerable improvement on the lowest point in 2013 (104,000) but still more than 30,000 transactions fewer than the average during the period from 2000 to 2008.

Good third quarter in store

Although the second half of 2015 has yet to play out, we expect the market for owner-occupied homes to move on strongly. Current figures from the Dutch Association of Real Estate Brokers (NVM) point to a further growth in the number of transactions during the third quarter of this year [1]. Purchase contracts with NVM estate brokers are registered two months earlier on average than the actual transfer at the Land Registry. This number of purchase contracts rose in the second quarter by almost 15% compared to the first quarter (adjusted for seasonal effects), the best quarter recorded by the NVM since 2007 (Figure 5). The number of signed purchase contracts was even higher than in the strong fourth quarter of last year, which had all the hallmarks of an end-of-year rally, partly due to the temporary relaxation of the gift tax exemption.

Figure 4: Ongoing rise in four-quarter total since mid-2013
Figure 4: Ongoing rise in four-quarter total since mid-2013Source: Statistics Netherlands, Land Registry, computation Rabobank
Figure 5: Highest number of purchase contracts since 2007
Figure 5: Highest number of purchase contracts since Source: NVM, computation Rabobank

Reduced supply on the housing market …

As the number of sales rises, so does the supply of owner-occupied homes change. If all other factors remain constant, a rise in the number of transactions leads to a fall in supply. The number of houses for sale fell only very slightly in 2014 despite a sharp rise in sales, due in part to a relatively large number of new homes coming on to the market. At the start of this year, the number of houses on the market fell substantially by more than 25,000. During the second quarter this supply fell by around 5,000 homes (Figure 6). Even so, roughly the same number of owner-occupied homes are for sale as in 2010.  

The fall in supply and rise in number of sales is tipping the market for owner-occupied homes further in favour of sellers. The NVM shortage indicator divides the total number of houses for sale by the number of transactions. This indicator fell during the second quarter of this year to a seasonally adjusted value of 11.9, meaning that there are still more homes available on the market than before the crisis, when the value of the indicator averaged between 6 and 7. There is still plenty available, however, in the market for detached houses (Figure 7).  

Figure 6: Supply of houses falling at start of this year
Figure 6: Supply of houses falling at start of this yearSource: Huizenzoeker.nl, computation Rabobank
Figure 7: NVM shortage indicator falling
Figure 7: NVM shortage indicator fallingSource: NVM, computation Rabobank

… causing house prices to rise

Reduced supply on the market means a strengthening of vendors’ negotiating position and rising house prices (Figure 8). The Existing Homes Price Index (Prijsindex Bestaande Koopwoningen - PBK) of Statistics Netherlands/the Land Registry rose in the second quarter of 2015 by 1% compared to the first quarter (seasonally adjusted). Compared to the second quarter of 2014, the rise was 2.5% (Figure 9). Compared to its low point in June 2013, the price index in June this year is 5% higher. This means that owner-occupied homes in the Netherlands have risen in value by a little over EUR 11,000 during this period. 

Figure 8: Less supply on the market leads to price rises
Figure 8: Less supply on the market leads to price rises Source: NVM, Statistics Netherlands, computation Rabobank
Figure 9: House price trends 3m/3m and movements on annual basis
Figure 9: House price trends 3m/3m and							  movements on annual basisSource: NVM, Statistics Netherlands, computation Rabobank

Despite the rising prices, nominal house prices are still 17.6% lower than at their peak in 2008. In real terms (adjusted to take account of the rise in general price levels – inflation), house prices have risen by only 2.1% since the summer of 2013 and the loss compared to the crisis is no less than 26%. Current house price levels are, adjusted for inflation, the same as the level of 1999 Figure 10). 

Figure 10: Nominal and real house prices
Figure 10: Nominal and real house pricesSource: Statistics Netherlands, Macrobond, computation Rabobank

More expensive segment increasingly benefiting from growth

As far as the increase in sales is concerned, there are differences between house types. During the crisis, owner-occupied homes for starters were more affordable thanks to falling prices and mortgage interest rates. On the other hand, quite a number of those moving up the property ladder were having to cope with a mortgage debt higher than the value of their house (negative equity), which made it more difficult for them to move. The recovery that has been underway since mid-2013 has consequently been in the cheaper segment. As the market continues to recover, we are seeing the more luxury segment also benefiting from this growth. The number of transactions for detached houses rose more strongly year on year than for cheaper house types. Detached and semi-detached houses have therefore regained market share during the past quarter (Table 2). As far as the price recovery is concerned, we are seeing that houses generally purchased by first-time buyers have risen faster in price, but the more expensive house types have also posted price rises during the second quarter compared to the same quarter last year (Table 2).

Table 2: Increase in market share of detached and semi-detached houses
Table 2: Increase in market share of detached and semi-detached housesSource: Land Registry, Rabobank

Further growth anticipated in 2015 and 2016

The outlook for the Dutch housing market is positive. First and foremost, the economic context is very important. The Dutch economy is expected to grow this year and next by around 2% (see Chapter 1). What is especially important for the housing market is that employment continues to improve and purchasing power rises. The growth in employment will have a positive effect above all on the number of transactions, while rising incomes will generate upward pressure on house prices.

Secondly, homes are particularly affordable at present. House prices have only risen slightly from their low point in 2013, while average mortgage rates are roughly one percentage point lower (see Chapter 3). Calcasa (2015) argues that this was one reason why the affordability of owner-occupied homes[2] improved further during the first quarter of 2015. Buyers spent an average of 17% of their net monthly income on net housing costs. Despite the price rises during recent quarters, this is less than in the third quarter of 2013 (18%), when house prices had just reached their lowest point. Since the measurement of this indicator was introduced in 1995, the affordability of owner-occupied homes has never been as good as it is now (Calcasa, 2015). We expect affordability to remain favourable throughout this year and next, since we anticipate only limited house price rises, household incomes are rising and interest rates are likely to remain relatively low (see Chapter 3). Disposable income and interest rates are extremely important for house price trends, which we illustrate in two publications on a recently estimated house price model: Huizenprijzen vooral bepaald door inkomen en rente and Inkomen, rente en recente prijsstijgingen wijzen op een verdere toename van huizenprijzen.

Figure 11: Confidence points to rise in sales
Figure 11: Confidence points to rise in sales Source: VEH, Statistics Netherlands, computation Rabobank

In addition, confidence in the housing market remains high. This confidence is measured using the Eigen Huis Market Indicator, published by the Homeowners’ Association (Vereniging Eigen Huis), and in June this year was at a value of 104; five points higher than the highest point measured before the crisis. This would indicate a further rise in the number of transactions, although we expect that the rise in the number of transactions will not be as strong as Figure 11 suggests.

The rise in sales of new homes is also helping to improve throughflow in the market for existing owner-occupied homes (Dam, 2010). During the first quarter of 2015, new homes [3] experienced the best first quarter since 2008 with 7,500 sales (Figure 12). Planning application approvals are also clearly on the up again (Figure 13). During the first five months of this year, more than twice the number of planning applications were approved than last year. We therefore expect the market for new homes to experience substantial growth this year [4].

Figure 12: Rise in sales of new homes
Figure 12: Rise in sales of new homesSource: Monitor Nieuwe Woningen, computation Rabobank
Figure 13: Rise in planning application approvals
Figure 13: Rise in planning application approvalsSource: Statistics Netherlands, computation Rabobank

Finally, more and more households are slowly but surely moving out of negative equity as house prices rise and households repay their mortgages (Van Dalen and De Vries, 2015). More than a quarter of this group are looking to move house within two years. We estimate that around 140,000 households will move out of negative equity this year, and roughly the same number in 2016 assuming an average price rise of slightly over 2%. If prices rise faster or slower, naturally a corresponding larger or smaller number of households will do so. However, Figure 14 does show that negative equity remains a major factor and is putting the brakes on a strong increase of sales and house prices: roughly one in four households with a mortgage is in negative equity.

Figure 14: Percentage of households in negative equity with three scenarios
Figure 14: Percentage of households in negative equity with three scenarios Source: BZK/Statistics Netherlands, WoON2012, computation Rabobank

Tightening up of lending criteria putting brake on house prices rises

The ongoing tightening up of the credit standards is putting a brake on price rises. We will explain these measures further in paragraph 3.2. In anticipating price movements for this year and next, the tightening up of the Nibud standards is particularly important. These standards were tightened up considerably in July of this year, partly due to changes in the calculation method. For this year we expect the tighter standards to have a negative effect on house prices. For next year, the CPB Netherlands Bureau for Economic Policy Analysis forecasts a slight rise in purchasing power for those in work of 0.3% (CPB, 2015). In addition, inflation was lower than expected at the start of the year, which also had a positive effect on trends in purchasing power. If the government still decides at the State Opening of Parliament (Prinsjesdag) to ease the tax and premium burden for 2016, this could also mean that the Nibud standards will be slightly higher next year (see also our discussion of the scope for easing the tax and premium burden). On balance, all other factors remaining constant, the financing standards for this year will have a clear negative effect on prices. For 2016 the future standards may well have a limited but positive effect.

Forecasts for 2015 and 2016: further rise in sales and house prices

To conclude, we expect that both the number of sales and the house prices in the Netherlands will rise this year and next. As far as the number of transactions is concerned, we expect between 170,000 and 185,000 sales for this year, following on from 2014 when 153 thousand homes changed ownership (Figure 15). For 2015 the expected rise will be from 11 tot 21%, following the sharp catch-up growth of almost 40% in 2014. Considerable uncertainties are developments in the situation concerning Greece and Russia/Ukraine (see our Economic Quarterly), which may negatively affect economic growth in the Netherlands. But it is quite possible that the economy will grow faster than we expect at present, for example if the government really does decide to ease the tax and premium burden. We expect that the housing market can maintain transaction levels of 2015 into 2016, but during that year we expect little or no growth. In the positive scenario, with a strong growth in the number of transactions in 2015, we even anticipate that the housing market may fall back slightly in 2016 as the very low interest rates this year may cause purchases to be postponed. In total, we expect between 170,000 and 190,000 sales in 2016.

The higher number of transactions results in less supply on the market, which in turn leads to an increase in the average house price index. Major uncertainties for the second half of 2015 and 2016 are further trends in incomes and mortgage rates. If incomes rise faster than expected, house prices will also rise faster. But if the average mortgage rate rises unexpectedly sharply without the growth in household incomes rising too, this will have a negative effect on the growth in house prices (see Economic Report on our price model). On balance we expect an average rise in the house price index of 2 to 3½% in 2015 and an increase of 2½ to 4½% in 2016 (Figure 16). 

Figure 15: Transaction expectations in 2015 and 2016
Figure 15: Transaction expectations in 2015 and 2016 Source: Rabobank, Land Registry
Figure 16: Estimate of house price trends in 2015 and 2016
Figure 16: Estimate of house price trends in 2015 and 2016Source: Rabobank, Statistics Netherlands

2.2 Growth in all provinces

Sales rising in all provinces …

During the second quarter of 2015 the number of sales compared to the second quarter of 2014 rose in all provinces, from 11% in Zeeland to 28% in Drenthe. The rise in the number of transactions shows that the recovery on the housing market is being felt throughout the Netherlands. For a detailed analysis and explanation, please refer to our special: Recovery on the regional housing market [5].

Table 3 shows that in the period from 2013-2015 [6] virtually every province experienced trends that were strongly related to the national average. Only Zeeland deviated significantly from this growth during some quarters. Since mid-2013, provinces such as Noord-Holland and Utrecht have undergone stronger growth, but even in peripheral provinces such as Drenthe, Groningen and Limburg the recovery has firmly taken hold.

Table 3: Year-on-year trends in sales per province and in the Netherlands
Table 3: Year-on-year trends in sales per province and in the NetherlandsSource: Land Registry, computation Rabobank

…leading to less supply on the market in every province …

Figure 17: In each province buyers have less choice than in the past two years
Figure 17: In each province buyers have less choice than in the past two yearsSource: Land Registry, huizenzoeker.nl, computation Rabobank

The rise in the number of sales has caused reduced supply on the market in every province. However, we do see clear differences in levels: buyers in the Randstad have less choice than in the more peripheral regions. Trends in Zeeland are also clearly different to the rest of the country (Figure 17). But the effect of the recovery on the national housing market is evident in all provinces: there is less supply on the market throughout the country (Figure 17). Sales have risen in all provinces, and everywhere the supply is lower than during the past two years.

…and a rise in house prices

In line with reduced supply on the market, house prices rose during the second quarter of this year in all provinces. These rises varied widely, though, from 0.7% in Zeeland to 5.4% in Noord-Holland. Table 4 shows in greater detail that there is a clear association between the house price trends per province and the national average. In 2013 all the provinces experienced sharp price falls and a recovery took hold in all provinces in 2014-2015 (in the form of slower falls or price rises). Once again, Zeeland is the only province that deviates from this. Noord-Holland was the first province to see house price rises in excess of 2%, and several other provinces have gradually followed this trend. 

Table 4: Year-on-year trends in house price index per province
Table 4: Year-on-year trends in house price index per provinceSource: Statistics Netherlands, computation Rabobank

Major cities growing faster …

Although we are seeing a recovery on the housing market in all provinces, it is the trends in the major cities that stand out. Figure 18 shows that prices in the major cities – particularly Amsterdam and Utrecht – have risen faster than the national average. The high demand for owner-occupied homes in the city translates into upward pressure on prices. During the second quarter of this year, house prices in the major cities rose faster year on year than the national average (2.5%): Amsterdam +8.1%, Utrecht +4.4%, Rotterdam +5.3% and The Hague +3.3%. If we look at trends across the quarters, we see price rises in Amsterdam and Utrecht recently levelling off, while Rotterdam and The Hague have in fact seen stronger price rises on a quarterly basis (Table 5).

Figure 18: Movements in house price index in major cities 
Figure 18: Movements in house price index in major cities seasonallySource: Statistics Netherlands
Table 5: Quarter-on-quarter price movements in major cities, seasonally adjusted 
Table 5: Quarter-on-quarter price movements in major cities, adjustedSource: Statistics Netherlands, computation Rabobank

… but also in the major cities is the affordability better than before the crisis

A word commonly seen recently in the media is ‘overheating’ when referring to the major cities. This would appear to be prompted particularly by the sharp price rises and the extent to which offers are made again above the asking price.  Although the owner-occupied market in the large cities compared to the pre-crisis levels is still less tight, the scarcity-indicator of the NVM in Amsterdam is already close to a comparable scarcity as in 2007 (Figure 19).

Figure 19: Scarcity in Amsterdam almost as high as before the crisis, not in Utrecht
Figure 19: Scarcity in Amsterdam almost as high as before the crisis, not in Utrecht Source: NVM, computation Rabobank

If we look at price levels in Amsterdam, Rotterdam, The Hague and Utrecht, these are still 6.2, 9.4, 14.8 and 10.4% lower respectively than at their peak before the crisis. The nominal disposable household income remained during that period approximately equal, and given the significantly lower interest rates, the current affordability is still much better than it was at that time. Thanks to the strong rise in demand and limited options to increase the housing supply in the cities quickly, affordability is soon reduced and a shortage in supply develops more quickly than in rural areas. The fact that owner-occupied homes in popular residential areas become less affordable for an average household is, incidentally, a normal manifestation of scarcity. It is therefore to be expected that reduced affordability in the cities will eventually cause a shift in demand from the cities to other areas in the country. 

Authors
Pieter van Dalen and Rogier Aalders

Chapter 3: Mortgage trends

Total mortgage debt in the first quarter of 2015 rose by EUR 1.3 billion compared to the previous quarter, and we expect this total mortgage debt to rise further this year and next, as a result of the expected increase in the number of house sales. We do expect, though, that just as last year households will make extra repayments on their mortgages as interest rates on savings are low. Although slight upward pressure will be exerted by the rise in the capital market rates, we expect mortgage rates to remain low in 2015 and 2016.

3.1: Total mortgage debt rising

The total mortgage debt rose in the first quarter of 2015 by EUR 1.3 billion to reach more than EUR 635 billion (Figure 20 [7]). The value of new mortgage approvals was therefore greater than the repayments for the second quarter in a row. Figures on the total mortgage debt in the second quarter of 2015 are not yet available, but based on the monthly figures available for mortgage lending by the banks and the increase in new mortgage approvals (see next paragraph) we expect the total mortgage debt to have risen further in the second quarter compared to the first quarter.

Rise in new mortgages

During the second quarter of 2015, banks and other mortgage lenders lent a total of EUR 11.1 billion in new home mortgages (Figure 21), an increase of 13.6% compared to the previous quarter (seasonally adjusted). A number of favourable financing conditions expired on 1 July 2015 (paragraph 3.2), which households may well have been anticipating in the second quarter. During the first quarter of 2015 the seasonally adjusted number of new mortgages fell by 3.1%, following a quarter in which this number rose by 13.2%. This decline in the first quarter of this year was due to the end-of-year rally in the last quarter of 2014.

Compared to the first quarter, we also saw a rise in the number of refinancing or extra borrowing (Figure 21). Here too this may be an anticipatory effect as households wanting to take advantage of the historically low mortgage rates choose to remortgage or borrow extra on their home.

Figure 20: Value of existing mortgages
Figure 20: Value of existing mortgages Source: DNB
Figure 21: Mortgage approvals
Figure 21: Mortgage approvalsSource: Land Registry, computation Rabobank

Higher repayments on mortgages

Many households made extra repayments on their mortgage loans in 2014, largely prompted by the low interest rates on savings and the temporary relaxation of the temporary exemption of the limit for tax-free gifts (from October 2013 to December 2014). Negative equity was also a reason for many households to make extra repayments, in order to avoid or reduce any residual debt on a future move. We expect the extra repayments on mortgages will remain relatively high this year too. Savings interest rates are very low, and so it is a more attractive option for many households to pay off their mortgages, rather than adding to their savings. And although the number of households in negative equity is falling, this group is still large. On the other hand, the amount of the exemption from gift tax was halved from 1 January 2015 [8] so that the peak in extra mortgage repayments seen in 2014 has probably passed.

For 2015 as a whole, we expect a further rise in the number of house sales (see Chapter 2). As a result, the number of new mortgage approvals will also rise. We expect the effect of this will be greater than the total repayments on mortgage loans, which is likely to cause a rise in the total mortgage debt in 2015.

3.2: Changing financing conditions

The year 2015 has seen a number of changes in the financing conditions for new mortgage approvals. The loan-to-value (LTV), the Nibud standards, the maximum mortgage interest relief rate and the National Mortgage Guarantee threshold are being adjusted. The impact of these changes on the housing market is described in Chapter 2.

Since 2012 the maximum mortgage loan that can be borrowed compared to the value of the house (loan-to-value, or LTV) has been reduced by 1 percentage point each year and will reach 100% in 2018. The maximum LTV in 2015 is 103%. In May this year the Financial Stability Committee (FSC) advised reducing the maximum LTV further to 90%. The current government however would appear not to wish to follow this advice at present.

Furthermore, the financing burden percentages, i.e. the maximum percentage of the income that households may spend on gross mortgage payments (the ‘Nibud standards’), were tightened up further on both 1 January and 1 July of this year[9]. In addition, the maximum tax rate against which a homeowner may claim mortgage interest relief has been further reduced. Since 2013 this rate has been reduced by 0.5 percentage points each year, and will continue so until it reaches 38% in 2041. For 2015 the maximum rate is 51%. And finally, the maximum amount for buying a house with a National Mortgage Guarantee (NHG) was reduced to EUR 245,000 with effect from 1 July. This amount has been reduced since July 2012 and from 2017 onwards will follow the average house price.

3.3: Low mortgage interest rates

After reaching a historic low in the fourth quarter of 2015, mortgage interest rates continued to fall further in the second quarter (Figure 22 [10]). In June 2015 the average rate for new mortgages was 2.7% for a fixed-interest period of one to five years, 2.9% for a fixed-rate period of six to ten years, and 3.3% for a fixed-interest period of more than ten years (DNB).

Despite the recent fall, swap rates for 5 and 10 years are significantly higher at present than at the start of May (Figure 23). This rapid rise, however, is not reflected in the trends for long-term mortgage rates, as these fell further in both May and June. The 10-year swap interest rate is expected to rise again over time to around 1.2% at the end of the year, and to 1.5% over the coming twelve months. The downward pressure on capital market interest rates caused by the ECB’s quantitative easing programme is expected to be more than compensated by an improving economic climate in the Eurozone and a gradual rise in inflation. Higher interest rates in the USA too are expected to contribute to these, as yet still modest, rises in long-term interest rates in the Eurozone.

Short-term swap interest rates also jumped in May, but have fallen back again in recent weeks due to further falls in the three-month Euribor. We expect that money market rates may even fall further, partly as a result of growing excess liquidity on the money markets. All this is happening against the backdrop of our expectation that the ECB will probably not raise its most important interest rates for the coming two years.

The market for residential mortgage-backed securities (RMBS) and covered bonds by banks and insurers shows that, on balance, the spreads in the past few months have risen slightly. These spreads can be seen as an indicator for the risk premium that banks have to pay if they attract capital market finance to provide mortgages.

Although there will be slight upward pressure as capital market rates rise, we expect mortgage interest rates to remain relatively low in 2015 and 2016. 

Figure 22: Mortgage interest rates for new mortgages
Figure 22: Mortgage interest rates for new mortgagesSource: DNB
Figure 23: Volatile movement in swap interest rates
Figure 23: Volatile movement in swap interest ratesSource: Macrobond

Author
Björn Giesbergen

Footnotes

[1] The NVM covers around 70-75% of the total market for existing owner-occupied homes. 

[2] The portion of the net monthly income households use for net housing costs at the moment of buying a house.

[3] Figures based on the New Housing Monitor (Monitor Nieuwe Woningen - MNW) which covers 75-80% of new owner-occupied homes.

[4] For more information and forecasts for new housing construction, see the Rabobank Construction Update, which is expected to be published in August this year. 

[5] See here our English summary.

[6] For practical reasons the table has been kept small. The same pattern can be seen if we look back over a longer period. 

[7] This EUR 635 billion is the gross mortgage debt, unadjusted for capital built up in savings mortgages. Since the capital built up in savings mortgages will increase faster in the coming years through the cumulative return on capital for a relatively large group of households, the net mortgage debt will rise more slowly than the gross mortgage debt, and may even fall while gross debt rises

[8] Parents may currently make a one-off tax-free gift of no more than EUR 52,000 to each of their children aged between eighteen and forty years, if this sum is used to purchase a house, repay a mortgage debt or fund an expensive course of study. This sum had been temporarily raised to EUR 100,000 from October 2013 to 1 January of this year, and had fewer conditions. For example, a parent-child relationship between the giver and the recipient was not required. 

[9] The tightening up of standards with effect from 1 July 2015 had an effect on mortgage rates below 3.5%. Below this percentage, lower financing burden percentages are calculated from that date.

[10] DNB introduced a change in the method in December 2014. As a result, both the percentages from before and after the change are shown for December 2014.

Literature

Boumeester, H. and C. Lamain (2014). Regionale verschillen in de Eigen Huis Marktindicator.

Calcasa (2015). The WOX quarterly Q1 2015.

CPB (2015). Centraal Economisch Plan.

Dalen, P. van and P. de Vries (2014a). Stricter Nibud standards will limit price recovery on the Dutch housing market in 2015.

Dalen, P. van and P. de Vries (2014b). Afloop verruiming schenkingsvrijstelling heeft beperkt negatief effect in 2015.

Dalen, P. van and P. de Vries (2014c). Gevolgen veranderingen NHG in kaart.  

Dalen, P. van (2015). Eindejaarsrally Nederlandse woningmarkt sterker dan verwacht.

Giesbergen, B. (2015a). Woningmarkt trekt consumptie mee omhoog.

Giesbergen, B. (2015b). Europese regels bieden Nederland beperkte ruimte voor lastenverlichting.

NVM (2015). Woningmarktcijfers: 2e kwartaal 2015

Smid, T. (2014). Structurele hervormingen op de Nederlandse arbeidsmarkt.

Charts

Prices and Sales
Prices and SalesSource: Statistics Netherlands (CBS), Rabobank
Various price measurements
Various price measurementsSource: CBS, Calcasa, NVM, Kadaster
Issued building permits
Issued building permitsSource: CBS
Capital market: various countries
Capital market: various countriesSource: Macrobond
3-month Euribor
3-month EuriborSource: Macrobond
Interest rate on new mortgages by term
Interest rate on new mortgages by termSource: DNB
Volume of existing mortgages by institute
Volume of existing mortgages by instituteSource: DNB
Volume of new mortgages by term
Volume of new mortgages by termSource: DNB
Unemployment in The Netherlands
Unemployment in The NetherlandsSource: CBS
International comparison of unemployment
International comparison of unemploymentSource: Eurostat
International house price development
International house price developmentSource: Dallas Fed
Economic expectations The Netherlands
Economic expectations The NetherlandsSource: CBS, Rabobank

Key data

key data

Colophon

The Dutch Housing Market Quarterly is a publication of Economic Research (ER) of Rabobank. The view presented in this publication has been based on data from sources we consider to be reliable. Among others, these include Macrobond, Land Registry, NVM, DNB, CPB and Statistics Netherlands.
The date of completion is 31 July 2015.

This data has been carefully incorporated into our analyses. Rabobank accepts, however, no liability whatsoever should the data or prognoses presented in this publication contain any errors. The information concerned is of a general nature and is subject to change.

No rights may be derived from the information provided. Past results provide no guarantee for the future, Rabobank and all other providers of information contained in this brochure and on the websites to which it makes reference accept no liability whatsoever for the brochure’s content or for information provided on or via the websites.

The use of this publication in whole or in part is permitted only if accompanied by an acknowledgement of the source. The user of the information is responsible for any use of the information. The user is obliged to adhere to changes made by the Rabobank regarding the information’s use, Dutch law applies.

Economic Research is also on the internet: www.rabobank.com/economics

For more information, please call the KEO secretariat on tel, +31 (0)30 – 216 6666 or send an email to ‘economics@rn.rabobank.nl’,

Text contributors:
Pieter van Dalen, Björn Giesbergen and Rogier Aalders

Editors:
Rogier Aalders and Martijn Badir

Editor-in-chief:
Tim Legierse, head of Head Domestic Research, Economic Research, Rabobank

Production coordinator:
Christel Frentz

© 2015 - Coöperatieve Centrale Raiffeisen-Boerenleenbank B,A,, the Netherlands

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