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Further growth Dutch housing market expected in 2015 and 2016

Dutch Housing Market Quarterly

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  • The owner-occupied housing market fell back less sharply than expected during the first quarter of 2015
  • This year we expect to see between 160,000 and 180,000 transactions, following 153,000 in 2014. In 2016 we anticipate a further rise to between 165,000 and 185,000 sales
  • Average house prices expected to rise in 2015 by between 1½ and 3½% compared to 2014. In 2016 we expect average rises of between 2 and 4%
  • A number of signals are on green, such as the improved economic situation, low mortgage rates and high levels of confidence
  • The residual debt problem, scaling back stimulus measures and credit restrictions are restraining growth
  • There are significant regional differences, but all provinces are benefiting from the recovery

Summary

Economic recovery positive for the housing market

The Dutch economy started 2015 on a strong footing. For this year and 2016 we expect broad based economic growth. A particular positive development for the housing market is the fact that employment is picking up and disposable household income will continue to rise.

Signals on green, but credit standards are restricting growth

We expect 2015 and 2016 to see further growth in the owner-occupied housing market. Positive factors such as further economic recovery, high consumer confidence, low mortgage interest rates and the substantial number of new homes sold are expected to be stronger than the negative factors, such as the scaling back of stimulus measures, the negative equity problem and credit-restricting measures. We anticipate a rise in the number of sales of existing homes in 2015 from 160,000 to 180,000, following sales of 153,511 homes last year. In 2016 we expect hardly any growth, with the number of sales between 165,000 and 185,000. The average house price index is expected to rise in 2015 by between 1½ and 3½%, following a rise of 0.9% in 2014. We anticipate a squeeze on the number of homes on the market in 2016, with house prices rising further during that year by an average of between 2 and 4%.

Recovery in all provinces; large towns and cities showing stronger growth

There are marked regional differences in the Netherlands. In the major cities such as Amsterdam and Utrecht, house prices are rising well above average. Even so, all provinces are benefiting from the recovery on the housing market. This is partly due to the fact that mortgage rates do not differ from region to region, income trends are closely related to the national trend, and consumer confidence is also widespread throughout the Netherlands. There are of course major differences within the provinces themselves. We will discuss this topic in greater detail in a Special, which will be published at the end of May.

Mortgage interest rates remain very low

Total mortgage debt fell in 2014 by EUR 1 billion compared to the previous year. We do expect this to rise again in 2015 and 2016, partly because of an expected increase in the number of new mortgages being approved. At the same time we can expect extra repayments on mortgages to remain relatively high in 2015, not least because of the low interest rates. We expect the average mortgage interest rate to remain low this year and next year, due in part to the quantitative easing programme of the ECB.

Chapter 1: Economic background

In 2014 the volume of the Dutch Gross Domestic Product (GDP) rose by 0.9% largely driven by exports. The economic recovery will continue this year and in 2016, not only thanks to higher growth in exports, but also due to private consumption rising again. We therefore expect economic growth of 1¾% in 2015 and 2016. The economic recovery will also manifest itself in the labour market, where unemployment will fall slightly this year and next as the job market picks up.

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

In the first quarter economic growth was slightly higher than our most recent economic predictions. When we revise our growth projections later this month there is a high chance that we will increase our economic growth forecast for 2015 from 1¾% to at least 2%.

Cheap euro boosting exports

Export volumes increased by 4% in 2014. This year we expect a further acceleration of export growth to 5¼%: economic growth in the Netherlands' major trading partners will continue to pick up this year, with exports being helped by the cheaper euro. In 2016 we expect our exports to receive a further boost from the weakening of the euro, but the economic growth of our major trading partners is expected to be high enough for us to achieve a growth in exports of 5%.

Low inflation good for disposable household income

This year we expect average inflation to be negative. Last year consumer prices hardly rose at all: inflation hovered around 0.3%, the lowest level since adopting the internationally comparable HICP inflation measurement (1997). The recent fall in oil prices has exerted further downward pressure on prices. Falling prices at the pumps through lower oil prices has even caused negative inflation during recent months. The effect of lower oil prices will become less pronounced during the course of this year and so inflation will rise into positive figures again. Averaged through the year as a whole, we expect inflation to be 0%. Next year, as oil prices are expected to rise again, inflation will rise to an average of 1%.

Low inflation is favourable for disposable household income. For the first time in many years the increase in negotiated wages during the past few months was well above inflation, which has produced wage rises in real terms (see Figure 1). The recovery on the labour market is also contributing to higher disposable income, which together with rising levels of consumer confidence mean that we expect private consumption volume to increase this year by 1¼%. Next year higher inflation will slow down the rate of growth in disposable household income. Unlike this year, though, households in 2016 are not expected to put extra cash into their savings and so we expect consumption to continue to rise in 2016 by 1¼%.

Figure 1: Positive wage trends in real terms
Figure 1: Positive wage trends in real termsSource: Statistics Netherlands
Figure 2: Growth in number of employment agency hours points to further recovery in employment
Figure 2: Growth in number of employment agency hours points to further recovery in employmentSource: Statistics Netherlands

Labour market continues to pick up

For this year and next, we expect the labour market to continue its recovery. Economic growth is improving this year and forecast indicators would also point to a further recovery in the labour market of the private sector. The number of temporary agency hours worked - often a good predictor of a recovery on the labour market (Figure 2) - has continued to rise uninterruptedly for eighteen months and is now at its highest point since the end of 2008. The number of job vacancies has also been rising for six quarters in a row. Furthermore, the job cuts in the care sector are expected not to be so severe as they have been during the past year, as we assume that the heaviest blows in this sector have already been delivered. The labour force is likely to grow this year and next as employment participation rises. Even so, we expect growth in employment to be high enough for unemployment to fall, from an average of 6¾% this year to 6½% in 2016.

Author
Martijn Badir

Chapter 2: Market for existing owner-occupied houses

During the first quarter of 2015, 34,527 existing owner-occupied homes changed ownership. Adjusted to take account of the usual seasonal patterns, this is a fall of 12.7% compared to the fourth quarter of 2014, considerably less than we had anticipated (-20%). Reduced supply in the housing market meant that house prices continued to rise, by 0.5% compared to the fourth quarter of last year, adjusted for seasonal effects (Figure 3).

Figure 3: Sales falling as expected, prices rising slightly
Figure 3: Sales falling as expected, prices rising slightlySource: Statistics Netherlands, Land Registry, computation Rabobank

The rise in the number of transactions and house prices was evident in virtually every province in the Netherlands. Following the catch-up growth from last year we expect to see only modest growth in house prices and sales this year and next, largely thanks to high levels of confidence, historically low mortgage rates and the accelerating economic recovery. The residual debt problem, the scaling back of stimulus measures and tightening up of credit standards will however put a brake on this growth.

2.1 National trends and expectations

Rise in sales in the first quarter …

Figure 4: Best first quarter since 2008, rise in four-quarter total
Figure 4: Best first quarter since 2008, rise in four-quarter totalSource: Statistics Netherlands, Land Registry, computation Rabobank

The housing market got off to a strong start in 2015. As already mentioned, the number of transactions for existing owner-occupied houses fell less sharply than we had anticipated. The relaxation of the gift tax exemption contributed to the end-of-year rally during the fourth quarter of last year, and so a fall-back was to be expected. Compared to the first quarter of last year, however, there has been a 19% increase. The total number of sales during the past four quarters is now at almost 160,000 (Figure 4).

… means reduced supply on the housing market …

As the number of sales rises, so the supply of owner-occupied homes changes. If all other factors remain constant, a rise in the number of transactions produces a fall in supply. The number of houses for sale fell only 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, however, the number of unsold homes fell substantially. Compared to December 2014, in March this year there were almost 25,000 fewer homes for sale, seasonally adjusted (Figure 5).

The fall in supply and rise in number of sales is tipping the market for owner-occupied houses further in favour of sellers. The NVM shortage indicator divides the total number of houses for sale by the number of transactions. This indicator also fell further during the first quarter of this year to a seasonally adjusted value of 12.8. In most segments, though, there are still more homes available on the market than before the crisis, when the value of the indicator averaged between 6 and 7. For detached houses, there is still plenty available (Figure 6).

Figure 5: Supply of houses falling at start of this year
Figure 5: Supply of houses falling at start of this yearSource: Huizenzoeker.nl, computation Rabobank
Figure 6: NVM shortage indicator falling
Figure 6: NVM shortage indicator fallingSource: NVM, computation Rabobank

… causing upward pressure on house prices

The rising number of sales and the falling supply of unsold houses are causing the selling market to contract, which in turn is generating upward pressure on prices (Figure 7). The House Price Index of existing homes (HPI) of Statistics Netherlands/the Land Registry therefore also rose further during the first quarter of 2015. Seasonally adjusted, the HPI rose by 0.5% compared to the fourth quarter of 2014, and compared to the first quarter of 2014 the rise was 2.4% (Figure 8). Compared to its low point in June 2013, the price index is now 4% higher. Even so, nominal house prices are still 18% lower than before the crisis and therefore at the same level of 2003.

Figure 7: Les supply on the market leads to price rises
Figure 7: Les supply on the market leads to price risesSource: NVM, Statistics Netherlands, Rabobank
Figure 8: House price trends 3m/3m and movements on annual basis
Figure 8: House price trends 3m/3m and movements on annual basisSource: Statistics Netherlands, Rabobank

Recovery visible in every segment

As far as the increase in sales is concerned, there are significant differences between house types. During the crisis, owner-occupied homes for starters were more affordable thanks to falling house prices and mortgage interest rates. On the other hand, quite a number of those moving up the property ladder were suffering from negative equity (a mortgage debt higher than the value of the house), 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. Almost two-thirds of sales in the first quarter of this year were for apartments or mid-terrace homes, while before the crisis this was still 58%.[1] As the market continues to recover we are seeing the more luxury segment also benefiting from this growth. The number of transactions for detached homes rose more strongly year on year than for cheaper house types (Table 2). The price recovery also varies from segment to segment. Even so, prices did rise in all segments (Table 2).

Table 2: Sales trends and house prices by segment in the first quarter of 2015
Table 2: Sales trends and house prices by segment in the first quarter of 2015Source: Statistics Netherlands, Land Registry, computation Rabobank

Further growth anticipated in 2015 and 2016

A number of signals are on green in the Dutch housing market. First and foremost, the economic context is very important. The Dutch economy has picked up faster in 2015 than we were expecting (see Chapter 1). What is especially important for the housing market is that employment continues to improve and that disposable household income 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.

The affordability of homes is also very good at present. House prices have only risen slightly from their low point in 2013, while average mortgage rates during the fourth quarter of 2014 were more than half a per cent lower (see Chapter 3). Calcasa (2015) argues that affordability of homes[2] improved further in the fourth quarter of 2014. Buyers spent an average of 16.9% of their net monthly income on net housing costs. Despite the slight price rises during recent quarters, that is less than in the third quarter of 2013 (18%) when house prices had reached their low point. Since the 1990s the affordability of owner-occupied homes, particularly for starters, 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 small house price rises and interest rates are likely to remain relatively low (See Chapter 3).

In addition, confidence in the housing market is high. This confidence is measured by the Eigen Huis Market Indicator published by the Homeowners' Association (Vereniging Eigen Huis), and in the first quarter of this year was at a value of 103; five points higher than the highest point measured before the crisis between 2004 and 2008. This would indicate a further rise in the number of transactions, although perhaps not as strong as Figure 9 might suggest due to the negative equity problem.

Figure 9: Confidence points to rise in sales
Figure 9: Confidence points to rise in salesSource: VEH, Statistics Netherlands, computation Rabobank

The rise in sales of new homes is also helping to improve the dynamics in the market for existing owner-occupied homes (Dam, 2010). During the last quarter of 2014, with almost eight thousand sales, new homes[3] experienced the best fourth quarter since 2008. The total number of new homes sold reached around 25,000 in 2014; a rise of more than 70% compared to the 15,000 in 2013 (Figure 10). Planning application approvals are also clearly on the up (Figure 11). In January and February 2015, 110% more planning applications were approved than in the first two months of last year. We therefore expect the market for new builds to experience substantial growth this year.[4] 

Figure 10: Rise in sales of new homes
Figure 10: Rise in sales of new homesSource: Monitor Nieuwe Woningen, Source: Statistics Netherlands, computation Rabobank
Figure 11: Rise in building permits
Figure 11: Rise in building permitsSource: Statistics Netherlands, computation Rabobank computation Rabobank

Finally, more and more households are gradually moving out of negative equity as house prices rise slightly and households repay their mortgages. We estimate that around 165,000 households have done so during the past year. Quite a number of households in this group want to move within two years. This year we estimate that almost 140,000 households will move out of negative equity; in 2016 this is estimated to be 134,000 (Table 3, column 4). Table 3 also shows that negative equity is still a major factor in the housing market; roughly one in four households with a mortgage are in negative equity, which is putting the brakes on fast growth of sales and house prices.

Table 3: Forecast of number of households in negative equity, basic scenario
Table 3: Forecast of number of households in negative equity, basic scenarioSource: BZK/Statistics Netherlands, WoON2012, computation Rabobank

Tightening up of credit standards putting brake on house prices above all

The ongoing tightening up of the credit standards is putting a brake on fast price rises and growth in transactions. A study by Van der Minne et al. (2014) shows that changes in credit conditions are responsible for around half of house price movements. ‘Credit conditions’, an umbrella term for the standards set by the sector itself, are laid down in the Code of Conduct for Mortgage Finance and government standards such as the Nibud standard, LTV conditions, and the NHG. These standards will be tightened up further during the coming years. For example, the maximum ratio between the mortgage sum and the value of the house (loan-to-value, LTV) will be reduced each year by 1% to 100% in 2018 (now therefore 103%), the maximum rate at which the homeowner may claim tax relief on mortgage interest payments (currently 51%) will be reduced each year by 0.5% to 38% and the Nibud standards have become stricter in 2015.[5] Following the tightening up of these standards this year, partly due to changes in the calculation method, the Nibud standards in 2016 will be adjusted in line with the trends in purchasing power. The CPB forecasts a slight rise in purchasing power for those in work of 0.3% for next year (CPB, 2015). This points to roughly the same level of the standards in 2016. Finally, the NHG limit will be reduced until 2017 to the average house price. On 1 July this year this limit will be reduced from EUR 265,000 to EUR 245,000, and in July 2016 will be reduced further to EUR 225,000 (for more information, see Van Dalen en De Vries, 2014c). On balance we expect that the price-boosting factors mentioned earlier will have a slightly stronger effect on house price trends than more stringent credit conditions.

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

To conclude, we expect the number of transactions in 2015 to reach between 160,000 and 180,000; a modest growth compared to the 153,511 in 2014. The fall-back in the first quarter was not as pronounced as expected, so we have adjusted our earlier scenarios upwards (see the previous Dutch Housing Market Quarterly). In the positive scenario where the economy recovers more strongly than we anticipate, the estimated growth is higher (Figure 12, stronger growth). If economic growth is less than we expect as a result of tensions in Greece and Russia/Ukraine, there will be lower economic growth in this scenario (see our Economic Quarterly), which in that case will mean that the housing market will hardly grow at all (Figure 12, low growth). For 2016 we expect the housing market to maintain the level of transactions achieved this year, but hardly to grow at all during the year. Mortgage rates are expected to bottom out during the course of this year, which will limit growth next year. In addition, slightly fewer households will move out of negative equity. In the positive scenario, with a strong growth in the number of transactions in 2015, we even anticipate that the high level of activity on the housing market will fall back slightly in 2016, as the very low interest rates this year may cause buyers to bring forward their buying plans (Figure 12, stronger growth). We expect a total of somewhere between 165,000 and 185,000 house sales in 2016.

The higher number of transactions increases the scarcity, which in turn causes house prices to rise. In addition, disposable household income will rise further this year and next, albeit less strongly in 2016 than in 2015 (See Chapter 1). In the positive scenario, this rise in incomes is stronger than anticipated, and so house prices will also rise more strongly. Ultimately we expect an average rise in the house price index of 1½ to 3½% in 2015, and between 2 and 4% in 2016 (Figure 13). In view of current economic developments we believe that a positive scenario is more likely than a negative scenario.

Figure 12: Transaction expectations in 2015 and 2016
Figure 12: Transaction expectations in 2015 and 2016Source: Rabobank, Land Registry
Figure 13: Estimate of house price trends in 2015 and 2016
Figure 13: Estimate of house price trends in 2015 and 2016Source: Rabobank, Statistics Netherlands

2.2 Regional differences remain significant, but all provinces benefiting from the recovery

There are considerable regional differences in the Netherlands. In the past year, house prices in provinces with a relatively high income, a higher level of urbanization and/or a rising population have seen stronger average house price rises than in other areas. Even so, generally speaking there is above all a difference in the level of house prices rather than a difference in growth;the national trend is still important for regional developments. One reason for this is that the historically low mortgage rates are the same throughout the Netherlands, income trends are closely related to the national trend and there is widespread confidence in the housing market. However, the major cities do form an exception to this conclusion. A detailed analysis at regional and municipal level will be published at the end of May in our regional Special on the housing market.

Sales rising in all provinces …

During the past quarter the number of sales compared to the first quarter of 2014 rose in all provinces, from 2.3% in Zeeland to 25% in Flevoland. The rise in the number of transactions in all provinces underlines the fact that the recovery on the housing market is being felt throughout the Netherlands.

Table 4 shows that in the period from 2013 to 2015[6] virtually every province experienced trends that were strongly related to the national average. Only Zeeland deviated significantly from this growth during a number of quarters. During the recovery since mid-2013, provinces such as Noord-Holland and Utrecht have undergone stronger growth, but even provinces such as Drenthe, Groningen and Limburg have been following the same trend (or colour in the table). This can be explained partly by consumer confidence, which is an important factor in the number of sales (see Figure 8). The OTB measured this confidence among almost 4,000 individuals in the Netherlands, and is representative of the composition in the Netherlands. This confidence shows few regional differences, although confidence in the west of the country is on average slightly higher than in the east (Boumeester en Lamain, 2014).[7] 

Table 4: Year-on-year trends in sales per province and in the Netherlands, 2013-2015
Table 4: Year-on-year trends in sales per province and in the Netherlands, 2013-2015Source: Land Registry, computation Rabobank

… house prices too

The Existing Homes Price Index (HPI) rose in line with sales in all provinces on a yearly basis in the first quarter of this year. The rise varied considerably, from 0.1% in Zeeland to 4.2% in Noord-Holland. At the same time, a general price rise indicates that prices in the provinces outside the Randstad conurbation have also bottomed out.

Figure 14: National trend very important for ten of the twelve provinces
Figure 14: National trend very important for ten of the twelve provincesSource: Statistics Netherlands

Even back in the period from 1998 to 2002 Noord-Holland, led by Amsterdam, headed the field in terms of house price rises, although ten of the twelve provinces followed this upward trend (Figure 14). Only Limburg could not keep pace, probably because of limited demand, and in Flevoland an extensive building programme has had a negative effect on house prices.

Table 5 shows in greater detail that there is a clear association between the house price trends per province and the national average. In 2013 virtually all the provinces experienced sharp price falls, while all provinces benefited from the recovery in 2014-2015 (slower falls or price rises). Zeeland is again the only province to deviate significantly from this trend. Noord-Holland was the first province to see house prices rising above 2%, which has gradually been followed by the other provinces. Thanks to historically low mortgage interest rates (see more on this in Chapter 3) it is not surprising that virtually all provinces are benefiting from the recovery. After all, there is no regional variation in these interest rates and every buyer experiences this in lower monthly repayments.

Table 5: Year-on-year trends in HPI per province in 2013-2015 (end of crisis and recovery)
Table 5: Year-on-year trends in HPI per province in 2013-2015 (end of crisis and recovery)Source: Statistics Netherlands, computation Rabobank

Additionally, income trends are a major factor in explaining house prices. Within this we see differences in level above all, but differences in growth are limited at a provincial level. Table 6 shows that income movements in the past did not show any significant differences from region to region. Although recent data are not yet available, we expect to see that the association between provincial income trends and the national trend is still quite strong.

Table 6: Nominal household income per province in 2001-2011, index 2001=100
Table 6: Nominal household income per province in 2001-2011, index 2001=100Source: ABF, computation Rabobank

Finally, we see at a lower level (71 NVM districts) similar house price trends, albeit with some delay. Where the NVM reported in early 2013 that a small number of regions (mainly in the Randstad conurbation) were seeing house prices rising again year on year, this is now happening in 70% of the NVM areas (NVM, 2015). If the national recovery continues, we expect more and more regions to benefit from this recovery.

Major cities - above all Amsterdam and Utrecht - on the up

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 15 shows that the impact of Amsterdam on the Dutch housing market has increased markedly. Where the market volume (transactions multiplied by the average house price[8]) of major cities such as Rotterdam, Utrecht and The Hague remained fairly stable between 2000 and 2014, prices in Amsterdam rose spectacularly. Now Amsterdam accounts for roughly 9% of the volume of the entire Dutch housing market (Figure 15).

A possible explanation for the strong rise in market volume is the increase in the share of owner-occupied homes in the housing stock in Amsterdam, from 19% in 2006 to 25% in 2012 (Statistics Netherlands, 2015). It is also quite possible that foreign investors too have been buying up property in Amsterdam during the past year (Financial Times, 2013).

The strong demand for owner-occupied houses in urban areas is also reflected in Amsterdam in a much stronger rise in house prices than the national average. Where the house price index for the Netherlands as a whole rose by 2.4% in the first quarter of this year compared to the first quarter of last year, house prices in the major cities rose much faster: Amsterdam +10%, Utrecht +6.9%, Rotterdam +3.9% and The Hague +2.5%. House prices in Amsterdam are still around 8% lower in nominal terms than they were before the crisis (Figure 16).

Figure 15: Strong rise in Amsterdam market share
Figure 15: Strong rise in Amsterdam market shareSource: Land Registry, Rabobank
Figure 16: House price movements in major cities compared to NL
Figure 16: House price movements in major cities compared to NLSource: Statistics Netherlands

Author
Pieter van Dalen

Chapter 3: Mortgage trends

Total mortgage debt in 2014 fell by EUR 1 billion compared to the previous year. We expect the total mortgage debt to rise again this year and next, partly as a result of the anticipated rise in new mortgage approvals. We do expect, however, that the extra repayments on mortgages partly prompted by low savings interest rates will be relatively high as well in 2015. In addition, we currently estimate that average mortgage rates will remain low this year, partly due to the quantitative easing programme of the ECB.

3.1: Total mortgage debt falls slightly

Total mortgage debt in 2014 fell by EUR 1 billion to EUR 632 billion (Figure 17)[9], even though the number of house sales rose significantly and there was a slight rise in house prices. The strong rise in house sales in 2014 also meant a higher number of new mortgage approvals. The effect of rising prices and transaction numbers was however entirely cancelled out in 2014 by the extra repayments on existing mortgages. At the time of writing this Housing Market Quarterly figures on the total mortgage debt for the first quarter of 2015 are not yet available, but on the basis of available monthly figures on mortgages issued by banks, we estimate that the total mortgage debt will fall slightly in the first quarter compared to the last quarter of 2014.

In view of the expected further rise in the number of transactions in 2015, and with it a rise in new mortgage approvals, we expect total mortgage debt to rise again slightly this year.

Rise in new mortgages

In line with the rise in the number of house sales, the number of new mortgages approved is also rising again. During the first quarter of 2015, EUR € 8.5 billion in new home mortgages was lent (Figure 18), a fall of 29.2% compared to the previous quarter. This is largely due to the relaxation of exemptions from gift tax ending on 1 January this year, which caused the number of new mortgage approvals to rise strongly in the last quarter of 2014. Compared to the first quarter of 2014, 25.6% more new mortgages were approved. Incidentally, the number of remortgages in the first quarter of 2015 declined less sharply than new mortgage approvals (Figure 18).

With the anticipated growth in the number of house sales, we expect the number of new mortgage approvals to rise again for the rest of the year.

Figure 17: Value of existing mortgages
Figure 17: Value of existing mortgagesSource: DNB
Figure 18: Mortgage approvals 2008-2015
Figure 18: Mortgage approvals 2008-2015Source: Land Registry

Higher repayments on mortgages

The extra repayments in 2014 were largely prompted by the low savings interest rates and the temporary relaxation of the one-off exemption on gift tax (from October 2013 to the end of December 2014). Negative equity can also be a reason to make extra repayments, so that the residual debt on any future move is lower. At Rabobank alone the extra repayments on mortgages reached EUR 4 billion in 2014, which was even higher than the EUR 3.6 billion in 2013. Other banks too are reporting higher repayments on mortgages (Treur, 2015). We estimate that around EUR 10 billion extra was repaid on mortgages in 2014.

We expect that the extra repayments on mortgages will also remain relatively high in 2015. As long as savings interest rates remain low, households will still choose to pay off their mortgages instead of adding to their regular savings. On the other hand, the maximum one-off exemption from gift tax was halved with effect from 1 January 2015[10], which means that the peak in extra repayments will probably have been reached in 2014. The introduction of an annuity regime for new mortgages for households which want to claim tax relief on their mortgage interest payments is slowly but surely exerting downward pressure on the growth of mortgage debt. We expect the rise in new mortgage[11] approvals this year to be slightly greater than repayments, which will signal the end of falling mortgage debt for the time being.

3.2: Not all LTVs can be seen as equal

During the past few months we have contributed to the debate on the loan-to-value (LTV) through a series of ten propositions. With effect from 1 January 2015 a maximum mortgage sum in relation to the value of the home (loan-to-value) of 103% applies (in 2014 this was still 104%). The LTV will subsequently be reduced by 1% each year until it reaches 100% in 2018. At present the Financial Stability Committee (FSC) is studying the effects of a further reduction in the LTV limit from 2018 onwards. A limit of 90% is frequently mentioned in this debate. The results of the study will be discussed at the forthcoming FSC meeting to be held in mid-May.

In our ten propositions we set out our arguments as to why a further lowering of the LTV limit after 2018 will not be necessary. A critical report was also recently published by the Amsterdam School of Real Estate, in which the authors argue that a further reduction in the LTV would lead to a loss of welfare, and under changing market conditions any price fluctuations would be more extreme with lower LTVs than in a situation with an LTV of 100% (Schilder et al., 2015). What the precise effect would be on the Netherlands requires further study since this has a significant impact on the ability of households with a potential residual debt to get back on an even keel.

In any case, prospective homeowners will have to save for longer if the LTV is reduced further after 2018. If future starters are living in public-sector rented accommodation, the skewed rent-to income ratio will become more pronounced. Starters who are living with their parents or in student accommodation will have to remain there for longer in order to save for a deposit. Households which use most of their savings to buy a house may have less debt, but also a smaller financial buffer. A lower LTV may therefore possibly contribute to greater financial stability through a more limited growth in mortgage debt, but also has clear negative effects which must be borne in mind.

3.3: Mortgage interest rates remain low

After reaching a historic low in the fourth quarter of 2014, average mortgage interest rates continued to fall, albeit slightly, during the first quarter of this year (Figure 19).

Capital market interest rates have fallen further in recent months towards a very low level. During the first week of May, however, swap interest rates suddenly shot up (Figure 20). We do not expect that this marks the beginning of a sharp rise in capital market interest rates. The quantitative easing programme by the ECB for example, will still exert further downward pressure on capital market interest rates. At the same time a return of interest rates to the previously reached low levels is not obvious. Our expectation is that the 10-year swap rate will eventually rise to between 1% and 1½% over a period of 12 months.

Furthermore, recent emissions of residential mortgage-backed securities (RMBS) and covered bonds by banks and insurers have meant that the spreads have fallen further in recent months. These spreads can be seen as an indicator for the risk premium that banks have to pay if they need to attract capital market finance to provide mortgages. A fall means that the financing conditions for financial institutions have improved.

Figure 19: Mortgage interest rates for new mortgages
Figure 19: Mortgage interest rates for new mortgagesSource: DNB *Series break in December 2014 due to change in method
Figure 20: Low swap interest rates
Figure 20: Falling swap interest ratesSource: Macrobond

Although there will be an upward pressure caused by the rise in capital market interest rates, we expect that mortgage interest rates in 2015 and 2016 will remain at relatively low levels.

Author
Björn Giesbergen

Footnotes

[1] See our previous Dutch Housing Market Quarterly for more information about market shares before and after the crisis.

[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] More information and forecasts to follow in the Rabobank Construction Update, which will be published in June this year.

[5] The effect of tightening up the standards has been partly compensated by the fall in interest rates. For more information, read our Economic Commentary.

[6] For practical reasons the table has been kept small. We see the same pattern if we look back over a longer period.

[7] One of the conclusions of the report is as follows: ‘the spread of regional average scores in the Eigen Huis Market indicator is limited, and the majority of the differences between the regions are not significant.’ Regional level is 57 NVM regions, of the 71 that the NVM generally reports on, a number of been merged.

[8] This is the average purchase price as recorded by the Land Registry, not adjusted for composition effects. 

[9] This EUR 632 billion is the gross mortgage debt, unadjusted for capital built up in savings mortgages. It is precisely because of this faster accrual that the net mortgage debt can fall while gross debt rises.

[10] Parents may now make a one-off tax-free gift of more than EUR 52,000 to each of their children aged between eighteen and forty years.

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

Literature

BNP Paribas Cardif (2015). Gevangen in huis uit angst voor restschuld.

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

Calcasa (2015). The WOX quarterly Q4 2014.

CPB (2015). Centraal Economisch Plan 2015.

Dalen, P. van en P. de Vries (2014a). Beperking prijsherstel Nederlandse koopwoningmarkt in 2015 door Nibud-normen.

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

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

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

Dalen, P. van en P. de Vries (2015). De ene LTV is de andere niet

Dam, F. van (2010). Nieuwbouw, verhuizingen en segregatie, PBL Planbureau voor de Leefomgeving.

Financial Times (2013). Time to take the plunge.

Minne, van der. A., Francke, M. en J. Verbruggen. (2014). The effect of credit conditions on the Dutch housing market.

NVM (2015). Woningmarktcijfers: 1e kwartaal 2015.  

Schilder, F., Conijn, J. en J. Rouwendal (2015). Welvaartsverlies door verdere verlaging LTV: effecten van de verlaging van de maximale LTV op de koopwoningmarkt

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

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 dataSource: Rabobank

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 13 May 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 Martijn Badir

Editors:
Paul de Vries and Enrico Versteegh

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

Graphics:
Pieter van Dalen, Reinier Meijer and Selma Heijnekamp

Production coordinator:
Christel Frentz

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

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Author(s)
Pieter van Dalen
Rabobank KEO
+31 30 21 2666
Martijn Badir
RaboResearch Netherlands Rabobank KEO
+31 88 726 7864
Björn Giesbergen
RaboResearch Global Economics & Markets Rabobank KEO
+31 88 726 7864

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