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Dutch housing market continues to gain momentum

Dutch Housing Market Quarterly

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  • The Dutch economy is currently on a favourable upward curve
  • Consumers are spending more and have confidence in the future
  • Mortgage rates are expected to remain low
  • The number of transactions will rise to 220,000 in 2016 and to 230,000 in 2017
  • House prices will continue to rise in both years by around 5%
  • Underlying factors supporting this rise are low interest rates, increasing shortages and more flexible Nibud standards
  • Regional differences remain considerable, but prices are rising virtually everywhere

Summary

Improving purchasing power and labour market good for the Dutch housing market

The Dutch economy is currently on a relatively favourable upward curve. This year we expect the economy to grow by 1¾% and in 2017 by 1½%. Domestic expenditure is also rising. Household consumption volume is on the up and consumer confidence has risen sharply in recent months. The housing market is picking up, leading in turn to strong growth in investment in housing. The economic recovery is also reflected in the labour market, where unemployment has been falling fast in recent months. At the same time, the international situation continues to be a cause for concern.

House prices and number of sales rising

Confidence among Dutch households in the market for owner-occupied homes is and remains high. In the third quarter of 2016 confidence rose further to a new record high. The number of sales in the third quarter of 2016 reached 60,707, over 10,000 transactions more than in the third quarter of 2015. The house price index (Prijsindex Bestaande Koopwoningen - PBK) is 5.6% above the level of a year ago. We expect that both the number of transactions and house prices will continue to rise during the next eighteen months. As far as the number of sales are concerned, we are anticipating a rise to around 230,000 homes a year, and as regards the house price index we anticipate an average annual rise of 5% for 2016 and 2017.

Mortgage interest rates will remain low for the time being

New mortgages amounting to EUR 16.4 billion were approved during the third quarter of 2016. This represents a rise of 28% compared to the third quarter of 2015. This rise is partly due to a rising number of transactions. Since the value of new mortgage approvals is higher than mortgage repayments, gross mortgage debt is rising again (662 billion euros). Mortgage interest rates are expected to remain low for the time being. During the past year the majority of house buyers have chosen to take out fixed-rate mortgages for a longer period.

Chapter 1: Dutch economy is currently on a favourable upward curve

The Dutch economy is currently on a relatively favourable upward curve. Domestic consumption in particular is rising. Household consumption volume is on the up and consumer confidence has risen sharply in recent months. The housing market is picking up, leading in turn to strong growth in investment in housing. We are also seeing economic recovery on the labour market, where unemployment has been falling fast during recent months.

Table 1.1: Key figures for the Netherlands
Table 1.1: Key figures for the NetherlandsSource: Statistics Netherlands, Rabobank

At the same time, the international situation is causing concern. Modest growth among the Netherlands’ major trading partners has meant that the export sector has contributed relatively little to growth, and international uncertainties continue to form a downward risk for the economy.

All in all, the rate of economic growth we expect for this and next year is 1¾% and 1½% respectively (table 1.1).

Households abandon their wait-and-see approach …

Household consumption volume has risen again during recent months. In August the three-month average of real household consumption grew by 0.7% (seasonally adjusted by Rabobank). A main reason for the rise in private consumption is the fact that real disposable household income has risen relatively strongly during the past months. Households have more cash left over for discretionary spending as wage increases are significantly outstripping inflation (Figure 1.1). The EUR 5 billion tax reduction package in 2016 and rising employment have also produced a rise in real disposable income.

It would appear that households are gradually becoming less cautious and are actually spending their extra income. Whereas previously the economic recovery was riding mostly on exports, consumer expenditure is now contributing more and more. It is striking that consumption in particular of goods for the home, such as furniture and white goods, has already been rising sharply for a number of quarters. This is likely to be bound up with the recovery on the housing market.

Households therefore are showing more confidence in the future. Consumer confidence rose from +8 in September to +12 in October, reaching its highest level since August 2007 (Figure 1.2). The sub-indicator ‘favourable moment to make large purchases’ in particular has shown a strong upward trend and further growth in consumption would therefore seem to lie ahead during the coming months.

Figure 1.1: Wage growth well above inflation
Figure 1.1: Wage growth well above inflationSource: Statistics Netherlands
Figure 1.2: Consumers have confidence in the future
Figure 1.2: Consumers have confidence in the futureSource: Statistics Netherlands

…and unemployment continues to fall …

More and more people are finding a job. Unemployment fell in September to 5.7%, bringing it to 2.2 percentage points below the peak of February 2014 (Figure 1.3). During recent months unemployment has in fact been falling faster, largely due to strong growth in employment.

Growth in employment during the last few quarters has been seen particularly in the commercial services sectors (mainly jobs through temporary employment agencies) and trade, transport and the hospitality industry (Figure 1.4). The rise in the number of vacancies and hours worked on temporary contracts points to further growth in employment in the private sector during the coming weeks and months. We therefore expect the fall in unemployment to continue, but at a slightly more modest rate due to a rising labour supply.

Figure 1.3: Unemployment falling sharply
Figure 1.3: Unemployment falling sharplySource: Statistics Netherlands
Figure 1.4: Employment in the private sector rising strongly
Figure 1.4: Employment in the private sector rising stronglySource: Statistics Netherlands

…but the international situation remains a risk to the Dutch economy

The lagging trends in the global economy may well impact the Dutch export sector. Growth in the emerging markets is slowing somewhat (see also Dumitru en Erken, 2016). Combined with the geopolitical unrest, such as that unleashed by the Brexit referendum, this does present a risk to the Dutch economy.

Chapter 2: The market for existing owner-occupied homes

Dutch consumers continue to have great confidence in the market for owner-occupied homes; in the third quarter of 2016 this confidence even reached a record high. More households are therefore active in the housing market, which can be clearly seen in the number of transactions: during the third quarter of 2016 60,707 homes were sold, over 10,000 more than in the third quarter of 2015.

At the same time, the house price index rose by 5.6% compared to the third quarter of 2015. The average sale price rose to almost 250,000 euros, 7.0% higher than a year previously. The fact that the average sale price is rising faster than the house price index means that a proportionally higher number of expensive homes have been sold. We expect both house sales and house prices to continue rising during the coming eighteen months.

2.1 Transactions

Spectacular growth in house sales

The number of house sales has risen every quarter since the third quarter of 2013. In that year only 29,000 sale contracts were signed, while now, three years later, this number has already reached almost 61,000. This rise, an average of 25% a year, is certainly spectacular.

During the past four quarters a total of 206,354 homes have changed ownership (Figure 2.1). For 2016 as a whole we expect the number of sales to reach between 210,000 and 220,000 homes, as traditionally more homes are sold in the fourth quarter than earlier in the year.

Figure 2.1: Number of transactions at a high level
Figure 2.1: Number of transactions at a high levelSource: Land Registry, computation Rabobank

The sales record dates from 2006, when a total of almost 210,000 homes were sold, and this record will probably be surpassed this year (see Figure 2.1). A number of factors can be identified in 2017 as well, that could contribute to further growth in the number of transactions. Think, for example, of the rise in the National Mortgage Guarantee (NHG) threshold and the increase in the one-off gift tax exemption (see paragraph 3.3).

Even so, we do not expect the spectacular growth in transactions of the past three years to continue at the same rate in the coming year. Although the positive effect of falling interest rates on the number of sales, the (limited number) of new-build homes for sale and improved affordability may continue to be felt, these factors will gradually decline in significance (see paragraph 2.3). In addition, a lowering of the registration threshold by the Credit Registration Bureau (Bureau Krediet Registratie, BKR)[1] and the lower maximum loan-to-value ratio (LTV ratio) may have a negative effect on house sales over the coming eighteen months.

Moreover, it is worth remembering that the number of sales stagnated following the record year of 2006 because of long-term shortages on the market for owner-occupied homes (see Figure 2.6). The supply could simply no longer keep up with demand in the longer term. At the moment we are not seeing a market similar to that of 2006 when shortages persisted for many years, but the supply of homes for sale is falling fast as demand rises. As a result, shortages are developing in the housing market which can be compared to those of ten years ago: there are now 7.4 houses for sale for every house sold, compared to 6.3 in 2006. Just as in 2006, the market for owner-occupied homes will eventually hit a ceiling. When the market will reach a tipping point is difficult to predict at present, but we believe that it will not necessarily be next year.

For 2017 we therefore anticipate a further growth in the market to no fewer than 230,000 transactions. We expect growth in the cities to level off in response to a fall in supply, but sales will in fact rise in the surrounding areas.

2.2 House prices

House prices rising again

Strong confidence in the market for owner-occupied homes, increasing shortages and falling mortgage rates continue to boost house prices. The house price index (PBK) rose in the third quarter of 2016 by 5.6% compared to the same quarter of the previous year (Figure 2.2). These rises are reminiscent of the period before the economic crisis. Average price levels at their peak in the third quarter of 2008 have not been reached yet, though. The PBK is currently 12% below this figure (Figure 2.3).

Figure 2.2: House prices continuing to rise since 2014
Figure 2.2: House prices continuing to rise since 2014Source: Statistics Netherlands, computation Rabobank
Figure 2.3: House Price Index at the same level as 2012
Figure 2.3: House Price Index at the same level as 2012Source: Statistics Netherlands, computation Rabobank

Our expectation is that the house price index will continue to rise during the coming quarters. Falling interest rates, rising incomes and growing shortages on the housing market are translated, with some delay, into price rises. The more relaxed lending standards coming into effect in 2017 will also drive up prices in today’s tight housing market. In addition, there is some discussion in political circles about the stringent use of the statutory debt-to-income limits by mortgage lenders. The outcome could be that the regulator AFM (Netherlands Authority for the Financial Markets) will allow some greater flexibility in the mortgage rules, so that house buyers will be able to borrow more. The further reduction in the maximum rate (from 50.5% to 50%) against which homeowners can deduct their mortgage interest payments from their income will, we believe, have little to no effect on price trends (see table 3.1).

For 2016 and 2017 we therefore assume price rises of 5% compared to last year (Figure 2.3). That means that price trends in 2016 throughout the Netherlands will accelerate from 4% in the first quarter to 5.9% in the last quarter. Moreover, this acceleration will be seen across all provinces.

There are some uncertainties, though, that could affect house prices. Negative trends abroad, for example, could depress economic growth in the Netherlands (Chapter 1), which in turn could lead to more moderate house price rises.

In addition, price trends for listed buildings is uncertain. The government intends to phase out the tax relief on the maintenance and renovation of listed buildings. That will mean sharp rises in net costs for new and existing owners. At present they can deduct from their gross income 80% of the maintenance costs, which are often much higher than for regular homes. This may put a brake on price rises of houses in that segment once potential buyers take these rising net maintenance and renovation costs into account.

2.3 Factors affecting market trends

Rising incomes (Chapter 1) and falling mortgage interest rates (Chapter 3) have made houses more affordable during the past year, and this has a major impact on the market. Shortages too affect this market; in the third quarter of 2016 the supply of houses for sale fell again compared to demand. This is partly caused by a limited rise in the number of new-build homes. These circumstances combined have produced a new record of consumer confidence in the owner-occupied housing market.

Affordability

The average affordability of owner-occupied homes continues to improve (Figure 2.4). The net housing cost ratio[2] fell from 18% in the first quarter of 2013 (when the current rules for the mortgage market came into force) to 16% in the third quarter of 2016.

This fall is largely due to the Nibud standards that form the basis of the Temporary scheme for mortgage credit (Tijdelijke regeling hypothecair krediet). The debt-to-income limits in this scheme are set in such a way that when mortgage rates are lower, households will find the amount of income they may spend on mortgage payments reduced. Since interest rates have been falling since 2013, the average housing cost ratio is also falling.

Recently there would appear to be scope for less strict regulations in this area. On 25 October 2016 a motion by the CDA parliamentary party on the debt-to-income limits was passed. This motion noted that the current standards can lead to unreasonable situations when approving mortgages, and that these standards can consequently make it more difficult for a large group of potential house buyers. The motion therefore calls for income growth and lower energy costs through sustainability measures to be taken more into account when approving mortgages. A motion asking for the maximum LTV not to fall further than 102% was rejected.

Experience has also shown that affordability fluctuates around a long-term average. Compared to the long-term average since 1995 (22.7%) the current percentage of 16% points to exceptionally good affordability. However, this is not a fair comparison because a substantial part of the fall in the net housing cost ratio has been caused by the reforms that came into effect on 1 January 2013. A comparison with average affordability since 2013 would therefore be fairer. This works out at 17.2%, which means that affordability has improved even since 2013 (Figure 2.4).

Figure 2.4: Affordability improving again
Figure 2.4: Affordability improving againSource: Calcasa, computation Rabobank

If we compare affordability in the owner-occupied housing sector with that in the rental sector, the average owner-occupied house has become progressively cheaper during the past few years and the average rented home has become more expensive. The causes are clear. In the period from 2008 to 2016, rents have risen by around 19% and the net housing cost ratio of owner-occupied homes has fallen from around 28% to the current 16%, generating higher demand for these homes. We expect the affordability of owner-occupied homes to worsen slightly in 2017 as house prices continue to rise.

Shortage

During the third quarter of 2016 the supply of owner-occupied homes for sale fell further to 136,000. During the previous quarter, house buyers still had 144,000 homes to choose from (Figure 2.5). One year earlier there were 30,000 more houses for sale. The number of houses for sale is falling is because householders are increasingly choosing to buy their new house first and then put their present house on the market. Buyer behaviour is therefore responsible for the falling supply.

Figure 2.5: Fall in number of houses for sale
Figure 2.5: Fall in number of houses for saleSource: Huizenzoeker.nl, computation Rabobank

As supply falls slightly and the number of sales rises, the market for owner-occupied homes is slowly being transformed from a market with good availability to one with shortages. The shortage indicator of the NVM divides the total number of houses for sale by the number of sales in a quarter. This indicator therefore gives an idea of the number of choices a house buyer has in a given period. The indicator fell from 30 in the first quarter of 2013 (just before the market had reached its lowest point) to 7.4 in the third quarter of 2016 (Figure 2.6).

Although the owner-occupied housing market is fast becoming a market of shortages, there are differences between the market segments. For example, there is still a good supply of detached houses on the market, but there is already a fair shortage of apartments.

Figure 2.6: Still more supply on the market than before the crisis
Figure 2.6: Still more supply on the market than before the crisisSource: NVM, computation Rabobank

The market for detached houses came to a halt during the crisis years: supply increased sharply while the number of sales fell faster than sales in other segments (Figure 2.6). The fact that there is still good availability of detached homes on the market is associated with their location. Most detached houses are in less urban and/or more remote areas where demand is lower. Even so, the market for detached houses is recovering fast. The decline in the choices available to buyers is in fact more marked in this segment than for all other house types, so ultimately we expect that the slightly lagging trend we see at present in this often more expensive segment will pick up in due course.

Confidence in the market for owner-occupied homes

Figure 2.7: Confidence points to more transactions
Figure 2.7: Confidence points to more transactionsSource: VEH, Land Registry, computation Rabobank

Confidence in the market for owner-occupied homes is determined by consumers’ perceptions of the previous, current and future market situation. In September the Eigen Huis Market indicator, published by the (Prospective) Homeowners’ Association (Vereniging Eigen Huis – VEH) matched the record that had been reached in August (121; Figure 2.7). The reason underlying this trend is that the majority of households expect mortgage interest rates to remain low and house prices not to fall during the coming twelve months. High confidence levels generally lead to a rise in the number of transactions for existing homes (see Boumeester, 2008).

Shortages too in the rental market

The rising demand for owner-occupied homes means that buyers find themselves having to compete more and more with each other. We see the same thing happening among tenants of rented homes in the non-subsidized (private) sector. Particularly in the middle segment, with rents between the rent control ceiling of 711 euros[3] and 1,000 euros per month, demand is greater than supply. That is expressed in the Randstad conurbation in fast-rising rents. The average rent per square metre, for example, in the second quarter of 2016 was 6.3% higher than that for houses that had been let one year earlier, according to Pararius. Throughout the province of Noord-Holland, prices in the private rented housing sector have even been rising by 11.1%.

The private rented housing sector is a small market and has been overlooked policywise for decades. Mortgage interest relief gives tax incentives to owner-occupiers, while subsidised rented accommodation of housing associations can count on cheaper land prices and favourable financing conditions. This has produced a situation where houses labelled as ‘private sector’ now only form a marginal proportion of the Dutch housing stock; just 6% in 2015 (Ministry of the Interior and Kingdom Affairs (BZK)/Statistics Netherlands, 2016). The owner-occupied housing sector dominates, accounting for 60% of the housing stock, whereas the subsidised sector, with a share of 34%, is also more important than the private rental sector.

And it is that limited market share that forms the crux of the matter. The medium-expensive rental sector has grown in just a few years to become a significant alternative for buying and renting in the subsidised rental sector. These could be older people who sell their house and rent for the last few decades of their lives, young people who do not yet want the permanence of buying their own home, and households that earn too much for subsidised housing, for which stricter allocation rules have applied since 2011. But the market has not been prepared for this new division of roles.­

Figure 2.8: More new households than houses in Amsterdam
Figure 2.8: More new households than houses in AmsterdamSource: Municipality of Amsterdam, computation Rabobank

Minister Stef Blok is therefore pushing for growth in this market segment, but the economic crisis meant that many building plans were scrapped or scaled down. While the number of households grew, the number of building permits for new homes in the rental market halved between 2008 and 2013 (Statistics Netherlands, 2016b/c), and so nothing came of an increased supply in medium-priced rented homes.

This discrepancy can be seen clearly in the capital city (see Figure 2.8). Amsterdam grew between January 2011 and 2015 by 19,853 households, while in the same period there was a net addition of only 9,429 rented and owner-occupied homes (see Figure 2.8). And this population pressure manifests itself not only on the owner-occupied housing market, but also in the rented sector.

Chapter 3: Mortgage trends

The number of mortgage approvals continued to rise in the third quarter of 2016. This rise is in line with the growing number of transactions for owner-occupied homes. As the value of new mortgage approvals is greater than the amounts being repaid on mortgages, gross mortgage debt is rising again. Mortgage interest rates are expected to remain low, both in 2016 and in 2017. The NHG threshold will rise in 2017 and borrowing capacity will also increase. 

3.1 Number of mortgage approvals and level of mortgage debt have both risen

During the third quarter of 2016 some 16.4 billion euros (15.7 billion euros seasonally adjusted) was lent in new home mortgages (Figure 3.1). This was a rise of 28% compared to the third quarter of 2015 and 13% compared to the second quarter of 2016 (seasonally adjusted). During the second quarter of 2016 the amounts approved for refinancing or extra borrowing remained virtually the same (Figure 3.1). For 2016 we expect the number of new mortgage approvals to continue to rise, in line with the rise in the number of house transactions and house prices (see Chapter 2).

The total outstanding gross mortgage debt rose in the second quarter by almost 4 billion euros, reaching a total of 662 billion euros (Figure 3.2)[4]. Since mid-2015 the volume of mortgage approvals has again been outstripping repayments and gross mortgage debt is rising. Total mortgage debt figures for the third quarter of 2016 are not yet available at the time of writing.

Figure 3.1: New mortgage approvals
Figure 3.1: New mortgage approvalsSource: Land Registry, computation Rabobank
Figure 3.2: Value of existing mortgage debt
Figure 3.2: Value of existing mortgage debtSource: Statistics Netherlands, computation Rabobank

We expect the total mortgage debt level to rise slowly in 2016 and 2017, just as in 2015. Set against the expected rise in the number of new mortgage approvals are the extra repayments on mortgages. As long as interest rates on savings remain low, many households will choose to repay their mortgages or put their savings into a bank savings mortgage rather than building up their capital in a regular savings account.

We expect the extra repayments to continue for some time. The reintroduction of the increased gift tax exemption (see paragraph 3.3) may also lead to extra repayments next year. The upward effect of the sharp rise in house sales since 2015 on mortgage debt, however, is stronger than the downward effect of these extra repayments.

3.2 Low mortgage interest rates

Mortgage rates fell further during the third quarter of 2016 (Figure 3.2.1). In September 2016 the average rate for fixed-rate periods of longer than ten years slipped below three per cent, to 2.98%, while the variable rates, at 2.05%, are still sitting just above 2% (DNB). One year ago, in September 2015, rates were still within a bandwidth of 2.5-3.3%.

Since mid-2015, most homeowners have been choosing a long fixed-rate period. More than 50% of the total value of new or renewed mortgages is tied up in a fixed-rate period of six to ten years (Figure 3.2). According to information from the Mortgage Data Network (Hypotheken Data Netwerk - HDN) which covers three-quarters of all mortgage applications, within this category it is the ten-year fixed-rate mortgage that is particularly popular. The group choosing for an even longer fixed-rate period has also grown. Around 25% of the total value of new and renewed mortgages is fixed for longer than ten years. Within this category, most choose a fixed-rate period of twenty years. As soon as interest rates start to rise again, this share may well increase further, as was the case in 2006 and 2007.

Figure 3.3: Interest rates for new mortgages
Figure 3.3: Interest rates for new mortgagesSource: DNB
Figure 3.4: Long fixed-rate period popular
Figure 3.4: Long fixed-rate period popularSource: DNB

When deciding on a long fixed-rate period, it is not only the low interest rate itself, but also what is known as the notional interest rate (‘toetsrente’) that plays an important role. The maximum mortgage sum will depend on income and interest rates. If borrowers choose a fixed-rate period shorter than ten years, it is not the actual interest rate but a notional interest rate of 5% that is used in the calculations. That is why those who want to borrow as high an amount as possible choose a fixed-rate period of at least ten years. In fact, among house buyers younger than 35 years, more than 80% choose a fixed-rate mortgage of at least ten years (DNB, 2016).

We do expect mortgage rates to remain low in the short term. In view of the uncertainty surrounding economic growth and the relaxation of monetary policy by central banks, it is unlikely that capital market rates will rise this year and next. As described in our Economic Quarterly Report we expect capital market rates to remain low, and even perhaps fall a little further. As long as a robust and sustainable recovery of the eurozone economy (and of the global economy in a wider sense) and inflation fail to materialise, capital market rates will also remain low. The asset purchasing programmes of central banks, particularly those of the ECB, the Bank of Japan and (since recently) the Bank of England are reinforcing the downward effect on the capital market rates. The ECB’s programme officially ends in March 2017, but it is fairly unlikely that the ECB will have reached its targets by then. We expect the ECB to clarify its position further in the coming months on a possible extension of the buying programme.

Figure 3.5: Swap rates
Figure 3.5: Falling swap ratesSource: Macrobond

Capital market rates have risen very slightly in the past few months. The swap rate was 0.5% in the beginning of November, and rose to 0.7% after the US presidential elections (Figure 3.5). We think that swap rates may rise further in the next few months in anticipation of further news about Donald Trump’s economic policy plans but expect the rates to stabilise further down the road: we expect a ten-year swap rate of around 0.8% over a period of three months and 0.6% over a period of six months. Our 12-month expectation is 0.2%.

Indices for credit default swaps (CDS) rose slightly, whereas recent emissions of covered bonds by banks and insurers showed very low and even negative spreads. These indices and spreads can be seen as an indicator for the risk premium that banks have to pay when attracting capital market finance to provide mortgages. The securitisation of mortgage portfolios (residential mortgage-backed securities; RMBS) has become a less important source of finance during recent years (DNB, 2016).

Compared to banks, insurers and pension funds are less dependent on external financing because they issue mortgages as an investment of the pension or insurance premiums paid by members. These parties are playing an ever greater role on the mortgage market and through increased competition exert downward pressure on mortgage rates. These factors indicate that the mortgage rates, despite minor increases, will remain low throughout 2016 and 2017.

3.3 Changes in borrowing and gift rules

As usual, the start of a new year sees changes in a range of credit standards, which are summarised in table 3.3.1.

A new addition to the list of changes is the lowering of the BKR registration threshold. The BKR registers all loans[5] by commercial providers, including mail-order credit, car loans, private car lease, overdraft limits and credit card limits (BKR infographic). The BKR will be lowering the registration threshold as early as next month, 1 December, to all loans above 250 euros and with a term longer than one month. At present only amounts higher than 500 euros with a term of three months or more are recorded (BKR). This change will prevent payment problems caused by the accumulation of invisible, short-term loans. For loans below the registration threshold, a lender cannot check through the BKR whether the information given by the client is in fact complete. The latter also applies, incidentally, for student loans issued by DUO, since the BKR does not yet register them.

Of all the changes, the Nibud standards have the greatest effect on borrowing capacity. The standards are particularly important for first-time buyers, because they are more likely than the average borrower to utilise their maximum borrowing capacity.

Table 3.1 Overview of measures
Table 3.1 Overview of measuresSource: Credit Registry (BKR), Ministery of the Interior and Kingdom Relations, WEW, Ministery of Finance

Moreover, the Nibud standards are closely associated, albeit with some delay, with house price trends (Boelhouwer and Schiffer, 2015). These standards have been tightened up considerably in recent years, as we discussed in our Special earlier this year. For 2017 the borrowing standards will be relaxed for mortgage rates of 2% and higher (Ministry of the Interior and Kingdom Relations), in response to the recommendations of the Nibud (advisory report). The reason for the relaxation is improved purchasing power in 2016, partly thanks to the five-billion-euro tax-reduction package and low inflation. For rates lower than 2%, however, the maximum debt-to-income limit is lower, so that a further fall in interest rates will not automatically result in a higher borrowing capacity. Mortgage rates below 2% are mainly found at present for mortgages with a low loan-to-value or with an NHG guarantee (Rabobank mortgage interest rates). Since it is mainly first-time buyers who will utilise their maximum borrowing capacity, if interest rates remain at the same level it is this group that will soon see the amount they can borrow reduced. First-time buyers generally have a high loan-to-value too, so this specifically concerns first-time buyers who want to take out a mortgage with an NHG guarantee.

However, the borrowing capacity of two-income households will be slightly improved next year, because 60% of the second income will be taken into account instead of 50% when calculating the maximum debt-to-income limit[6]. This increase ties in with changes in tax legislation: by adjusting the tax credits, two-income households will have more net cash left over than a single-income household with the same total gross income. Over the longer term the full amount of the second income may well be taken into account. Incidentally, it is permitted in certain cases to approve a loan sum above the maximum standard, such as by taking into account future growth in income or lower energy costs through energy-saving measures or the purchase of an energy-neutral home (‘NulopdeMeter-woning’). It is for the lender to decide to what extent it is willing to take advantage of this extra flexibility.

We are also seeing a further relaxation in the maximum cost limits to qualify for the National Mortgage Guarantee (NHG). Shortly after the crisis, the NHG threshold was raised considerably with the aim of boosting the housing market. This increase has been phased out step by step over the past few years. From the start of 2017 the NLG threshold will be linked to the average house price. Then a house with a purchase price of up to EUR 245,000 could be financed with an NHG, whereas in 2016 this was only EUR 231,132[7] (Homeownership Guarantee Fund - WEW).

Other standards, however, are being tightened up. For example, the maximum loan-to-value (LTV) will be reduced next year to 101% from its present 102% and households with an income in the highest tax bracket will be able to obtain half a per cent less tax relief on their taxable income: 50% in 2017 instead of 50.5% this year. Under existing legislation, the maximum tax relief will eventually be 38% in 2041. These measures are expected to have a much smaller effect on house prices than the Nibud standards.

Finally, there is good news for current and prospective homeowners with well-off families or friends. From 1 January the one-off gift tax exemption will be permanently raised to EUR 100,000, provided that the recipient is not older than 40 years and uses this gift to buy a house, repay a mortgage or pay off the ground lease. Those who had already made use of the higher exemption[8] of EUR 52,752 in 2015 or 2016 may take advantage of an additional exemption of up to EUR 47.248 in 2017 and 2018, so that the total gift may amount to a maximum of EUR 100,000.

All in all, we do not expect the changes to the loan standards and interest rates to hamper the dynamics of the housing market.

Footnotes

[1] From 1 December 2016, all loans in excess of 250 euros with a term of more than one month must be registered with the Credit Registration Bureau (BKR) in Tiel. Previously, only loans with a term longer than three months and a value of between 500 and 175,000 euros were registered (BKR, 2016). House buyers with a credit card or an overdraft facility on their current account will consequently find the amount of the mortgage they can take out reduced, according to the Association of (Prospective) Homeowners (Vereniging Eigen Huis – VEH).

[2] The housing cost ratio is the percentage of the net household income spent on net housing costs at the time of buying a house, and is an indicator of affordability of owner-occupied homes.

[3] The rent control ceiling, set at a monthly rent of 710.68 euros since 2015, determines whether rented accommodation deserves the label of ‘subsidised rented housing’ or not. Homes witha monthly rent above the rent control ceiling at the start of the tenancy come under the less regulated non-subsidised rental sector. 

[4] This EUR 658 billion concerns the gross mortgage debt. This has not been adjusted for capital accrued in savings mortgages (Spaarrekening Eigen Woning - SEW) and capital insurance policies (Kapitaalverzekering Eigen Woning - KEW). Researchers at DNB estimate this accrued capital to be worth EUR 31-37 billion (DNB, 2015). Since the accrued capital in savings mortgages will increase faster for a relatively large group of households in the coming years due to the cumulative return on capital, the net mortgage debt will rise more slowly than the gross mortgage debt and this net debt may even fall while the gross debt rises.

[5] The BKR registers mortgages only if there are payment arrears of 120 days or more. This limit is being reduced to three months.

[6] The debt-to-income limit is the part of the income that may be spent on mortgage payments. The higher the income, the higher that part of the income that may be used for this purpose. That debt-to-income limit is then applied to the total household income to calculate the borrowing capacty. The borrowing capacity of a two-income household is therefore closer to that of a single-income household than the percentage of 60 would suggest.

[7] In 2016 the total cost limit, including 6% in additional costs, is EUR 245,000 (WEW).

[8] During the last quarter of 2013 and in 2014 there was a temporary increase in the one-off gift tax exemption to EUR 100,000. This applied to everyone and there was no age requirement. In 2015 and 2016 there was a one-off exemption up to a maximum of EUR 52,752 for children and foster children younger than 40 years (Tax Customs Administration).

Literature

Boelhouwer, P and Schiffer, K (2015), Kopers verdienen meer.

BKR (2016), Toelichting wijziging kredietregistratiegrenzen.

Boumeester, H. (2008). Vier jaar eigen huismarktindicator. Tijdschrift voor de volkshuisvesting, 14(5): 50-56.

BZK/CBS (2016a). WoonOnderzoek Nederland.

CBS (2016b). Bouwvergunningen; huur- en koopwoningen, bouwkosten, inhoud, projectgrootte

CBS (2016c). Huishoudens; grootte, samenstelling, positie in het huishouden, 1 januari.

DNB (2016), Overview of Financial Stability in the Netherlands, Spring 2016, De Nederlandsche Bank, Amsterdam.

DNB (2016), Covered bonds outstrip securitisations, Statistical News 22 March, De Nederlandsche Bank, Amsterdam.

Gemeente Amsterdam (2015). Amsterdam in cijfers 2015.

Ministerie BZK (2016), Kamerbrief over Leennormen 2017.

Nibud (2016), Financieringslastnormen 2017 - Advies voor de financieringslastnormen 2017.

Rabobank Financial Markets Research (2016), Focus on ABS: Dutch RMBS and prepayments.

Rabobank (2016), Rente en valuta: neerwaartse rentespiraal nog niet doorbroken, chapter of Economic Quarterly Report, September.

Rabobank (2016), Stijgende inkomens en dalende hypotheekrente compenseren deels de strengere Nibud-normen.

Waarborgfonds Eigen Woning (2016), Verruiming van de NHG bovengrens.

Charts

Prices and transactions
Prices and transactionsSource: Statistics Netherlands, computation Rabobank
Price index and year-on-year movements
Price index and year-on-year movementsSource: Statistics Netherlands, Calcasa, NVM, Land Registry
Confidence in the owner-occupied housing market
Confidence in the owner-occupied housing marketSource: VEH
Building permits issued
Building permits issuedSource: Statistics Netherlands
International house price trends
International house price trendsSource: Dallas Fed
Capital markets in various countries
Capital markets in various countriesSource: Macrobond
Swap rates
Swap ratesSource: Macrobond
Mortage interest rates for new mortgages by term
Mortage interest rates for new mortgages by termSource: DNB
Volume of new mortgages by fixed-rate period
Volume of new mortgages by fixed-rate periodSource: DNB
Economic expectations
Economic expectationsSource: Statistics Netherlands, Rabobank

Key data

Colophon

The Dutch Housing Market Quarterly is a publication of RaboResearch 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 11th November 2016.

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.

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

Text contributors:
Paul de Vries, Leontine Treur, Jesse Groenewegen, Lisa Hoving and Nic Vrieselaar

Editor-in-chief:
Hans Stegeman, Chief Economist RaboResearch The Netherlands

Production coordinator:
Christel Frentz

© 2016 - Coöperatieve Rabobank U.A., Nederland

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