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Dutch housing market to maintain higher sales levels next year

Dutch Housing Market Quarterly

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  • The number of sales of existing homes to rise by 19% in 2015
  • The market will maintain this level in 2016, with between 175,000 and 195,000 transactions
  • Average house prices to rise by 2¾% in 2015 and by 2¾ to 4¾% in 2016
  • Positive influence exerted by low mortgage rates, high consumer confidence and anticipated income rises
  • This will be offset by the negative equity problem and a reduction in the LTV-cap
  • We expect mortgage rates to remain low next year

Summary

Higher economic growth in 2016, thanks in part to the tax reduction package

The Dutch economy is expected to grow this year and next by 2¼ and 2¾% respectively. This growth will be broadly based, due to a rise in exports as well as growing private consumption and private investment (Table 1). The housing market and the wider economy have a positive effect on each other. The rise in house sales and house prices generates growth in home investments and private consumption. It is particularly important for the housing marked that employment rises and purchasing power improves, now boosted by the EUR 5 billion tax reduction package announced on Budget Day (Prinsjesdag).

Housing market at higher level in 2016

In terms of sales, the third quarter of 2015 was better than we had expected and average house prices have continued to rise steadily. Activity in the housing market is picking up in virtually all the provinces.

As regards the number of sales, the housing market is returning to pre-crisis levels. We anticipate around 182,000 sales by the end of this year, a rise of 19% compared to 2014. For next year, higher economic growth and greater purchasing power combined with higher levels of confidence, a rise in the number of new house sales and low mortgage rates all indicate that the housing market can sustain this level. At the same time we do not expect the catch-up growth of 2014 (+39%) and the strong growth experienced this year (+19%) to continue at the same rate next year. We expect modest growth, to between 175,000 and 195,000 transfers of ownership. We will also see reduced supply on the market next year. The average house price index is expected to rise by 2¾% in 2015 and by 2¾ to 4¾% in 2016.

Mortgage interest rates expected to remain low

Total mortgage debt will rise only slightly this year as new mortgage approvals will be offset by higher extra repayments, prompted by the negative equity problem as well as low savings interest rates and tax incentives.

Mortgage rates have been hitting new record lows virtually every quarter, but now appear to be stabilising. Although next year there may be a slight upward pressure from a limited rise in capital market interest rates, we still expect mortgage rates to remain low in 2016.


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Chapter 1: Economic background

The Dutch economy is expected to grow this year and next by 2¼ and 2¾% respectively. This growth will be broadly based, due to a rise in exports and growing private consumption and private investment (Table 1).

Favourable export figure surrounded by risks

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

Despite the weak trends in global trade, Dutch exports have experienced steady growth during the first half of this year. Exports will continue to make a positive contribution to growth in GDP during the coming quarters. The low value of the euro and sustained growth in the Netherlands’ important trading partners support this growth in exports. However, downside risks threaten this positive outlook, such as a potentially more severe slowdown in economic growth in China and other emerging markets than we currently expect. Through declining growth in global trade and effects on confidence, this could have detrimental consequences for growth in production and exports in the Netherlands.

Private consumption and employment on the rise

Following a marked rise in the last quarter of 2014 and the first quarter of 2015, household consumption in the second quarter of this year has continued to rise. For the rest of this year and next year we expect further growth in private consumption. Several factors contribute to this. Consumer confidence has in fact been improving for some time and consumers are increasingly more inclined to make large purchases (Figure 1). Real disposable household income will also rise next year for the third year running, thanks to a further rise in employment (see below), rises in real wages and the EUR five billion tax reduction package announced on Budget Day (see also: Budget Day 2015: tax reform was not invited to budget party).

The positive trends on the housing market are also boosting growth in consumption (see further in this report). Growth in consumption is being somewhat tempered by lower rises in real wages, since inflation will rise slightly again next year. Moreover, a sharp fall in the coverage ratio for pension funds in the third quarter may spoil the party somewhat, as it could lead to lower pension payments or higher premiums.

Growth in employment during recent quarters has been largely in the commercial services sector as well as trade, transport and hospitality (Figure 2). The rise in the number of vacancies and temporary agency work points to further growth in employment in the private sector. In non-commercial services, cuts in the healthcare sector are holding back growth in employment. Unemployment is only falling slightly, partly because more people are looking for work as a result of the economic recovery. For this year we expect unemployment to be 6¾% of the working population and will fall further in 2016 to 6¼%.

Figure 1: Increasingly favourable time for large purchases
Figure 1: Increasingly favourable time for large purchasesSource: Statistics Netherlands, Rabobank
Figure 2: Growth in employment
Figure 2: Growth in employmentSource: Statistics Netherlands

Housing market and economy generating a flywheel effect

During the crisis years there was a negative spiral between trends on the housing market and the economy. However, since last year these have in fact been having a beneficial effect on each other. For example, the high number of house sales during recent quarters has had a positive effect on the consumption of household durables, such as furnishings and fittings and electrical appliances (Giesbergen, 2015), while house price rises also play a role via the wealth effect (CPB, 2014). The propensity to save is also not expected to rise further, partly due to an easing of the negative equity problem through extra mortgage repayments and rising house prices.

Alongside private consumption, housing investments via new-builds and renovations and more work for real estate agents and civil-law notaries are all making a positive contribution to economic growth (Figure 3). The growth of the housing market has been clearly evident during recent quarters in the volume trends of added value in the construction sector. For this year we expect growth of 6% in this sector, followed by 3½% growth in 2016 (see also: Broad recovery in challenging market conditions for businesses). The favourable trends in the housing market are consequently having a positive and broadly based effect on domestic expenditure.

Figure 3: Rising household consumption and housing investment
Figure 3: Rising household consumption and housing investmentSource: Statistics Netherlands

The general economic recovery is in turn having a positive effect on trends in the housing market, through growth in household incomes and rising employment. The growth in incomes is supporting the house price rises. Rising employment and household incomes and growing consumer confidence are also positively influencing the decision to buy a house or to move.

Author
Björn Giesbergen

Chapter 2: Market for existing owner-occupied homes

Figure 4: Sustained rise in sales and house prices
Figure 4: Sustained rise in sales and house pricesSource: Statistics Netherlands, Land Registry, computation Rabobank

During the third quarter of 2015, 50,609 existing owner-occupied homes changed ownership. Seasonally adjusted, this is a rise of 13% compared to the previous quarter. Following the end-of-year rally in 2014 caused by the temporary extension of the limit for tax-free gifts, the number of transactions fell in the first quarter of this year, but figures for the second and third quarters show that the upward trend in the housing market is holding firm. Sales are now approaching pre-crisis levels (Figure 4). The seasonally adjusted house price index rose in the third quarter by 0.8% compared to the second quarter (Figure 4). The increase in the number of transactions and house prices was evident in every province in the Netherlands, with the exception of Zeeland. 

2.1 National trends and expectations

Still plenty available in the market for owner-occupied homes despite rising sales …

More houses were sold in 2015 than the number of new homes coming on the market. This is in contrast to last year, when changes of ownership rose by 40% but the number of houses for sale fell only slightly as a large number of new homes came on to the market. Now that sales are rising further, the number of homes for sale continues to fall (Figure 5).

Even so, buyers generally find themselves in a good negotiating position. The NVM shortage indicator, which divides the total number of houses for sale by the number of transactions, fell in the third quarter to a seasonally adjusted value of 11. This means that buyers can choose from four to five homes more on average than before the crisis, when the indicator had a value of between 6 and 7 on average. However, there are significant differences per segment in this shortage indicator; for example, there is much more availability in the market for detached houses than that for mid-terrace houses or apartments (Figure 6). The regional differences are also considerable.

Figure 5: Correlation between supply and sales
Figure 5: Correlation between supply and salesSource: Huizenzoeker.nl, computation Rabobank
Figure 6: Shortage indicator falling
Figure 6: Shortage indicator fallingSource: NVM, computation Rabobank

… resulting in modest price rises

Figure 7: Less supply on the market leads to price rises
Figure 7: Less supply on the market leads to price risesSource: NVM, Statistics Netherlands, computation Rabobank

Reduced supply on the market means a strengthening of vendors’ negotiating position and rising house prices (Figure 7). Compared to the third quarter of last year, this rise was 2.9% (Figure 8). Compared to the fall in June 2013, the price index for September this year was 6% higher, which means that a house in the Netherlands has increased in value on average by that amount since June 2013. Despite rising house prices, house prices are still 16.5% lower than at their peak in 2008 (Figure 9).

Figure 8: House price trends 3m/3m and movements on an annual basis
Figure 8: House price trends 3m/3m and movements on an annual basis Source: NVM, Statistics Netherlands, computation Rabobank
Figure 9: Nominal house prices
Figure 9: Nominal house pricesSource: Statistics Netherlands, Macrobond, computation Rabobank

All segments benefiting from growth …

The increase in the number of sales and house prices varies depending on the type of house. The market recovery we have seen since mid-2013 has been mostly confined to  the cheaper segment. As the market continues to recover, we are seeing the more luxury segment also benefiting from this growth. Prices and sales are rising in each segment and the more luxury segment is regaining some of its market share compared to last year (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 also recorded price rises during the second quarter on a yearly basis (Table 2).

Table 2: Trends in market share, sales and price by segment
Table 2: Trends in market share, sales and price by segmentSource: Land Registry, Statistics Netherlands, Rabobank
Table 3: Average price difference since the market peak, by segment
Table 3: Average price difference since the market peak, by segmentSource: Statistics Netherlands, Rabobank

As well as the still modest price rises in the more expensive segment, the fall in value was greater in this segment during the crisis years. This means that the price differences with the market at its peak in 2008 is still relatively large (Table 3), which is consistent with the greater supply already mentioned in that segment (Figure 6). 

Factors affecting the market

We have seen sales rising sharply this year and last, following heavy falls during the crisis. House prices are now on their way up again. But what can we say about 2016? Here follows a summary of the main factors.

Economy
First and foremost, the economic context has a major effect on the housing market. The Dutch economy is expected to grow next year by 2¾%; the strongest growth since 2007 (see Chapter 1). Disposable household income will rise in real terms for the third year in a row. The EUR five billion tax reduction package, particularly for those in work, will mean a rise in purchasing power for this group of 2.5% next year, generating upward pressure on house prices. In addition, the expected growth in employment will have a positive effect on the number of transactions.

Affordability
Secondly, homes are particularly affordable at present. Calcasa (2015) argues that the affordability of owner-occupied homes improved further during the second quarter of 2015, despite a rise in house prices. Buyers spent an average of 16.1% of their income on housing costs[1], a fall of almost one percentage point compared to the previous quarter. 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 (Figure 10). We expect affordability to remain good in 2016 since we anticipate only limited house price rises, disposable income is rising and interest rates are likely to remain very low (see Chapter 3).

Confidence
In addition, confidence in the housing market remains very high. This confidence is measured using the Eigen Huis Market indicator, published by the Homeowners’ Association (Vereniging Eigen Huis), and in September this year was at a value of 105; six 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 this rise will not be as strong as Figure 11 suggests.

Figure 10: Affordability has improved further this year
Figure 10: Affordability has improved further this yearSource: Calcasa
Figure 11: Confidence points to rise in sales
Figure 11: Confidence points to rise in salesSource: VEH, Statistics Netherlands, computation Rabobank

New homes
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 second quarter of 2015, new homes[2] experienced the best second quarter since 2008, with eight thousand transactions (Figure 12).

Fewer households in negative equity
Next year fewer houses will be in negative equity than in 2015 thanks to rising house prices. We expect house prices to rise this year by 2¾%. As households make regular repayments and build up capital in savings mortgages, more than 150,000 households are expected to move out of negative equity in 2015, i.e. the value of their house will once again be higher than their mortgage debt.[3] This trend is expected to continue into 2016 for a further 170,000 households.

Figure 12: Rise in sales of new homes
Figure 12: Rise in sales of new homesSource: Monitor Nieuwe Woningen, computation Rabobank
Figure 13: Percentage of households in negative equity with three scenarios
Figure 13: Percentage of households in negative equity with three scenariosSource: BZK/Statistics Netherlands, WoON2012, computation Rabobank

On the other hand, Figure 13[4] shows that the problem of negative equity is still considerable. The group with a potential residual debt is still twice as large as before the crisis and this will put the brakes on rises in sales and house prices.

Tightening up of credit standards
The tightening up of the credit standards will put a brake on price rises next year. The Nibud standards are particularly important in this respect, since they are strongly related to house price trends, albeit with some time lag (Boelhouwer and Schiffer, 2015). These standards were tightened up considerably in July of this year, partly due to changes in the calculation method. These tighter standards may therefore continue to make their effect felt on house prices in 2016. At the same time, the new standards for most dual-income households that come into effect in January 2016 will be relaxed by a few per cent, depending on interest rates (see Nibud table, Figure 14). Improving purchasing power thanks to the EUR 5 billion tax reduction package in 2016 will only be carried through in the Nibud standards from 2017, because the debt-to-income limits are calculated based on the trends in purchasing power achieved in the year prior to the introduction.

Figure 14: Changes in lending capacity dependent on income
Figure 14: Changes in lending capacity dependent on incomeSource: Nibud

Additionally, the mortgage interest relief rate on a household’s taxable income will be reduced by half a percentage point next year: 50.5% instead of 51% this year. According to current legislation the maximum interest relief rate will eventually fall to 38% in 2041. The maximum LTV ratio will also be reduced next year, from 103% to 102%. And finally, the maximum cost threshold to be eligible for the National Mortgage Guarantee (Nationale Hypotheek Garantie - NHG) will be EUR 225,000 from July 2016 instead of the present EUR 245,000.[5] In 2017 the NHG will again focus on houses up to a maximum of the average house price.[6] These measures are expected to have less of an effect on house prices than the Nibud standards (see also our Economic Reports Analysis of the consequences of changes to NHG and proposition 8 on LTV ratio), but the entire package of more stringent financing standards will in fact exert downward pressure on house price rises next year.

Forecasts for 2015 and 2016

This year we expect 182,000 existing homes to change ownership, a rise of 19% compared to 2014. We expect the number of sales in 2016 to be slightly higher. Significant uncertainties in the future are economic trends that may not turn out to be as positive as we currently expect due to negative developments abroad. But it is quite possible that confidence in the housing market will continue to improve, which will be reflected in more transactions. Ultimately we expect to see between 175,000 and 195,000 sales of existing homes next year (Figure 15, blue line).

The slightly higher number of transactions will result in less supply on the market, which together with the anticipated rise in incomes will lead to an increase in the average house price index. Major uncertainties for next year 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, the growth in house prices will be lower than expected (see Incomes and interest rates point to a further rise in house prices). On balance we expect an average rise in the house price index of 2¾% in 2015 and a rise of 2¾ to 4¾% in 2016 (Figure 16).

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

2.2 Growth in all provinces

Sales rising in all provinces …

During the third quarter of 2015 the number of sales compared to the third quarter of 2014 rose in all provinces, from 14% in Zeeland to 42% 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.

Table 4 shows that in the period from 2013 to 2015[7] virtually every province experienced trends that were strongly related to the national average. Only Zeeland deviated significantly from this growth in some quarters. Since mid-2013, provinces in the Randstad such as Noord-Holland and Utrecht have experienced stronger growth in transactions, but even in peripheral provinces such as Drenthe, Groningen and Limburg, the recovery has firmly taken hold.

Table 4: Year-on-year trends in sales per province and in the Netherlands
Table 4: 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. 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 there is less supply than during the past two years.

 

 

… and a rise in house prices almost everywhere

In line with reduced supply on the market, according to the Existing Homes Price Index (HPI) house prices rose during the third quarter of this year in all provinces, with the exception of Zeeland. These rises varied widely, though, from -0.7% in Zeeland to +5.5% in Noord-Holland. Table 5 shows that there is a clear association between 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 price falls or price rises. That is nothing unusual. Buyers throughout the Netherlands are benefiting from historically low mortgage interest rates and a rise in purchasing power (see Chapter 3).

We are however seeing much stronger price rises in the more urban provinces (Noord-Holland, Zuid-Holland and Utrecht) compared to provinces with less urban populations. An urban living environment is viewed these days as an attractive place to live, and appeals to households. This creates upward pressure on prices, causing the prices to rise faster in an urban environment than a non-urban environment. This particular trend – above-average price rises in urban areas and lagging price rises in non-urban areas – has been going on for many years, and we expect it to continue during the coming years.

Table 5: Year-on-year trends in HPI per province
Table 5: Year-on-year trends in HPI per provinceSource: Statistics Netherlands, computation Rabobank

Authors
Pieter van Dalen and Paul de Vries

Chapter 3: Mortgage trends

The number of mortgage approvals continued to rise during the third quarter of 2015 as a result of the strong rise in the number of house sales. But with substantial mortgage repayments being made, the total mortgage debt will only rise slightly. Just as in 2013 and 2014, households are expected to make extra repayments this year as savings interest rates are low. Mortgage rates have been hitting record lows virtually every quarter, but now appear to be stabilising. Although there may be slight upward pressure next year as capital market rates rise slightly, we expect mortgage rates to remain low in 2016.

3.1 Total mortgage debt has not risen

Total mortgage debt fell in the second quarter of 2015 by EUR 0.4 billion to EUR 635.1 billion (Figure 18).[8] This means that the volume of repayments was slightly greater than the volume of new mortgage approvals in the second quarter. Figures on the total mortgage debt in the third quarter of 2015 are not yet available at the time of writing, but based on the monthly figures available for mortgage lending by the banks we do not expect the total mortgage debt to have risen in the third quarter despite the increase in new mortgage approvals.

Rise in new mortgages
During the third quarter of 2015, banks and other mortgage lenders provided a total of EUR 12.8 billion (EUR 12.5 billion seasonally adjusted) in new home mortgages (Figure 19), an increase of 14.4% compared to the previous quarter (seasonally adjusted). We also saw a rise in the number of refinancing transactions or extra borrowing (Figure 19). Historically low mortgage interest rates are prompting more and more people to borrow more on their homes or refinance with a different mortgage lender. The land registry does not record any interest rate changes with the same mortgage lender during or at the end of the fixed-rate period.

Figure 18: Value of existing mortgages
Figure 18: Value of existing mortgagesSource: DNB
Figure 19: New mortgage approvals
Figure 19: New mortgage approvalsSource: Land Registry, computation Rabobank

Not all home owners will benefit from refinancing. It is not an attractive option, for example, for homeowners with a savings mortgage who have already built up a substantial amount of capital. With these types of mortgages, not only does the amount of mortgage interest to be paid fall, but also the interest on the capital built up, so that homeowners will have to pay higher premiums to build up the capital they are aiming to accrue. One should not forget either the possibility of penalty interest if current interest rates are fixed for a longer period. Homeowners in negative equity also have fewer refinancing options.

Repayments
Many households have made extra repayments on their mortgage loans in recent years, totalling around EUR 11 billion in 2013 and EUR 18.5 billion in 2014 (DNB, 2015). This is mainly due to low interest rates on savings. Negative equity has also encouraged many households to make extra repayments in order to avoid or reduce any residual debt if they decide to move house. These households were partly helped by the temporary rise in the limit for tax-free gifts. Most of the extra repayments, however, were made by households with equity in their home. According to our estimates, during the first quarter of 2015 some 24% of all households with mortgages were in negative equity. A recent study by the DNB, however, reveals that only 18% of the extra repayments were made by homeowners in negative equity. Homeowners in particular with an interest-only or partially interest-only[9] mortgage are most likely to make extra repayments (DNB, 2015). For bank savings mortgages there are tax limits on the maximum amounts that can be paid into bank savings during the term of the mortgage.

For 2015 and 2016 as a whole, we expect a further rise in the number of house sales (see Chapter 2), which will in turn result in a rising number of new mortgage approvals. Since we anticipate the extra repayments on mortgages to remain high, on balance there will be only a limited increase in the total gross mortgage debt in 2015. As house prices rise and the number of transactions increases, the total mortgage debt will rise more sharply in 2016.

3.2: Low savings interest rates and tax incentives drive extra mortgage repayments

There are a number of reasons why households are continuing to make substantial extra mortgage repayments. Interest rates on savings are extremely low, making repayments on mortgage loans more attractive for many households than saving. Tax incentives also play a role. Wealthy parents have an extra incentive to make gifts or extra repayments, and by doing so to reduce their box 3 assets. This is because since 2013 the assets have been taken into account when calculating an individual’s own contribution for long-term care. What’s more, with effect from 1 January 2016 the elderly person’s allowance (ouderentoeslag), which permits the elderly on low incomes to maintain a higher level of tax-free assets, will be abolished (Tax and Customs Administration, 2015). In the 2016 Tax Plan proposed on Budget Day (Prinsjesdag) the calculation of capital gains tax (vermogensrendementheffing) will be adjusted as of 2017. In this proposal it will become a progressive tax, so that households with less capital will pay less tax, and householders with greater financial assets will pay more (Ministry of Finance, 2015).

For gifts from parents to their children, at present a limit for tax-free gifts of EUR 52,752 applies, provided that the recipient uses the gift to buy a house, repay a home acquisition debt, or pay for an expensive training course and has not reached the age of forty years (Tax and Customs Administration, 2015b). According to the Tax Plan, this exemption will rise to EUR 53,016 in 2016 and EUR 100,000 in 2017. From 2017 the exemption will be structural and not limited to gifts from parents to children; the age limit for the recipient will however remain at forty years. The aim of this structural relaxation of the exemption is to reduce the housing debt of Dutch households. Homeowners will be able to use such a gift to reduce their level of debt, either at the time of buying the house or by repaying the existing debt. The reason behind this structural relaxation is therefore different to the temporary extension of the limit for tax-free gifts that was in place from October 2013 to December 2014, when the aim was to help stimulate the housing market in a period of crisis (Ministry of Finance, 2015).

The government has also been seeking other ways to reduce housing debt, such as by using part of the pension contribution or part of the pension entitlements accrued. A detailed assessment by the Ministry of Social Affairs and Employment reveals that using a pension to make repayments on one’s house could be an attractive option for some groups of pension members, depending on the variant chosen. At the same time the assessment showed that using a pension for the house is difficult to incorporate in the present statutory framework. There are considerable legal risks regarding equal treatment on the basis of age. These legal risks cannot be eliminated within the current statutory framework. However, the government will take these views on using a pension for the house into account when developing the broad outlines of pension system reforms (SZW, 2015).

3.3: Sustained low mortgage rates

Mortgage rates stabilised during the third quarter of 2015, following almost continuous falls since mid-2011 (Figure 20). In September 2015 the average rate for new mortgages was 2.7% for a fixed-rate period of one to five years, 2.9% for a fixed-rate period of six to ten years, and 3.3 % for a fixed-rate period of more than ten years (DNB). Now that these rates are at historic lows, more and more households are choosing a long fixed-rate period (see Figure 21). This choice is also influenced by the use of a notional interest rate of 5% (toetsrente) in calculating the maximum mortgage amount for mortgages with a fixed-rate period less than ten years. Only if a fixed-rate period of at least ten years is chosen, the actual interest rate can be  used in the calculations. For those who wish to borrow as high an amount as possible, this forms a strong incentive to choose a fixed-rate period of at least ten years. More than 55% of all new or extended mortgages have a fixed-rate period of six to ten years. The group choosing an even longer fixed-rate period has also grown, to around 20% of the total amount of new mortgages and extensions. Once interest rates start to rise again, this share of mortgages is expected to increase further, as happened in 2006 and 2007.

Figure 20: Mortgage interest rates for new mortgages
Figure 20: Mortgage interest rates for new mortgagesSource: DNB
Figure 21: Longer fixed-rate periods
Figure 21: Longer fixed-rate periodsSource: DNB

The low mortgage rates are closely bound up with movements on the European capital market. However, the volatility of the capital market rates is not reflected in the much more gradual movements in mortgage interest rates for comparable periods. The five-year and ten-year swap rates fell steadily during the third quarter, having experienced two sharp jumps earlier this year (Figure 22).

Figure 22: Volatile movement in swap rates
Figure 22: Volatile movement in swap ratesSource: Macrobond

In October the 10-year swap rate was between 0.83 and 1.0%. We expect the ten-year swap rate to fall a little further in the coming months to around 0.85% over three months, and then to rise slightly to 1.25% over twelve months. 

The downward pressure exerted by the ECB’s quantitative easing programme on capital market rates is expected to be compensated next year by an improving economic climate in the eurozone and a gradual rise in inflation. Higher interest rates in the USA are also expected to contribute to this still modest rise in long-term interest rates in the eurozone. The big question currently on investors’ and analysts’ minds is whether the US Central Bank (the Fed) will raise interest rates as early as December. They keep a close eye on macro data from the USA; the better the economy is doing, the greater the likelihood of a rate hike in December. We expect the Fed to raise interest rates in December. Investors are divided over the issue: based on futures it would appear that around half expect an increase in December, while the other half do not anticipate this happening before 2016.

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. Insurers and pension funds, on the other hand, are less dependent on external financing because they provide mortgages as an investment of the pension or insurance premiums paid by participants and policyholders.

On balance, we expect mortgage rates to stabilise during the coming months at around the present low level. But should the ECB decide to take additional measures, and if competition increases, it cannot be ruled out that mortgage rates will even fall further slightly. Although slight upward pressure may be generated next year by the rise in the capital market interest rates, we expect mortgage rates to continue to remain low in 2016.

Author
Leontine Treur

Footnotes

[1] Note that repayments are not included in this index.

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

[3] For an explanation of the calculation method, see our Economic Report Capacity of households in negative equity to recover.

[4] The basic scenario of +2% will be carried on from 2017. We have calculated with our current estimation for 2016.

[5] In practice this means that buyers can buy a house with NHG up to a maximum purchase price of EUR 212,264.

[6] Note that this probably entails an easing of the NHG threshold, since the average purchase price at present is EUR 233,000.

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

[8] This EUR 635 billion is the gross mortgage debt, unadjusted for capital built up in savings mortgages and capital insurance policies. Researchers at DNB estimate this capital to be around EUR 31-37 billion (DNB, 2015). Since the capital built up in savings mortgages will rise faster in the coming years through the cumulative return on capital for a relatively large group of households, net mortgage debt will rise more slowly than the gross mortgage debt, and may even fall while gross debt rises.

[9] Roughly 60% of the Dutch mortgage portfolio comprises interest-only mortgages where households are not repaying the loan or building up capital. Most homeowners combine two or more mortgage forms for the same house. An interest-free mortgage is often combined with a repayment mortgage or a savings plan to build up capital. At the end of 2013 some 24% of homeowners with a mortgage had an interest-only mortgage for more than 90% of the total mortgage sum (DNB, 2015).

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Giesbergen, B. (2015). Woningmarktherstel trekt consumptie mee omhoog.

Maustrogiacomo, M. and R. van der Molen (2015), Dutch mortgages in the DNB loan level data, Occasional Studies Vol. 13-4.

Ministry of Finance (2015), Voorstel van wet tot wijziging van enkele belastingwetten en enige andere wetten (Belastingplan 2016).

Ministry of Social Affairs and Employment (2015), Verkenning mogelijkheid inzetten pensioen voor aflossing woningschuld.

NVM (2015). Woningmarktcijfers: 3e kwartaal 2015.

Rabobank (2015). Breed herstel bij uitdagende marktomstandigheden voor ondernemers.Sector forecasts 2016.

Charts

Prices and Sales
Prices and SalesSource: Statistics Netherlands (CBS), Rabobank
Nominal and real house prices
Nominal and real house prices Source: CBS, Macrobond
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 Netherlands Source: 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 Netherlands Source: CBS, Rabobank

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 30 October 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 can also be found on the internet: www.rabobank.com/economics

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

Text contributors:
Pieter van Dalen, Björn Giesbergen, Leontine Treur and Paul de Vries

Editor:
Enrico Versteegh  

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

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
Björn Giesbergen
RaboResearch Global Economics & Markets Rabobank KEO
+31 (0)30 21 62562
Leontine Treur
RaboResearch Netherlands Rabobank KEO
+31 30 21 67084
Paul de Vries
RaboResearch Netherlands Rabobank KEO
+31 30 21 62666

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