Country Profile

Construction Project in Utrecht, The Netherlands []

The Netherlands is a high-density, mostly urban country, with more than 80 percent of the population living in urban areas. Despite its density of 400 people per square km., the predominant house type is the single-family attached house. Half of the country’s housing stock of seven million was built after 1960.  The other characteristic of the Dutch housing stock is the widespread renovation and reuse of inner-city housing. Homeownership rates were low historically compared to most other European Union countries, but have steadily increased over the last three decades from 42 percent in 1980 to 59 percent in 2009.  

The rental sector is dominated by social housing (75 percent of the rental stock), which explains past preferences for rental tenure. The average monthly rent in 2009 was €442, while the net rent including subsidies was on average €386 per month. The average rent in 2009 was 23 percent of household income. When other costs such as utilities are included, this increases to 37 percent of income.  

A household in the owner-occupied sector spends an average of €494 per month, including the fiscal effect of the income tax deductibility of mortgage interest payments. The net average monthly cost for housing in the owner-occupied sector was 16 percent in 2009. Taking into account all other related housing costs such as utilities and property tax (excluding expenses for maintenance) the total cost relative to household income was 26 percent in 2009.  

During the period 2003 to 2008, house price growth was stable at around 3 percent to 4 percent annually, but started falling when economic activity weakened in the second half of 2008. During 2009 house price growthdeclined by more than 4 percent and the house price index of de WOX (frequently used index of Dutch house prices) showed a further decline of 3.2 percent in the first quarter of 2010 compared to the first quarter of 2009, but a turn-around in the second quarter. The average house price in the first quarter of 2010 was €248,000—just below the average for the end of 2007; the average house price of single homes was €269,000 and for multi-family homes, €189,000. Equally, housing transactions decreased in 2009 to 127,000 compared to 182,000 in 2008 and 215,000 in 2006. The Dutch Brokers Association forecasts a pick-up to 125,000 transactions for 2010.  

The slowing housing market had a negative impact on the mortgage market and only roughly 250,000 new mortgages were closed in 2009. Nevertheless, the total amount of outstanding mortgage loans at the end of 2009 was around €600 billion, which is at the same level as the Netherlands’GDP. Compared to other industrialized countries, this is a very high level. In numbers of loans, there are more than three million mortgages outstanding, on a total of close to four million homeowners. The reasons for this relatively large mortgage sector lie in 1) the favorable tax treatment of mortgage interest payments (for a maximum of 30 years); 2) tax exemption of capital gains from house price appreciation and from investment of principal payments into savings accounts, investment funds or insurance policy, all specially designed to take advantage of these tax benefits; and 3) high LTV ratios related to tax incentives and typically fixed-rate mortgages and stable mortgage payments.  

The tax advantages gave rise to special kinds of mortgages, e.g., the interest-only mortgage, which is most prevalent (roughly 50 percent of the market); the savings mortgages, for which the borrower pays interest to the issuer and premiums into a tax-free savings account with an insurance company, set to repay the debt at maturity; the investment or life mortgages, for which the borrower pays interest to the lender and premiums into an investment or insurance account that may or may not pay off the loan at maturity. These mortgages can be fixed for any number of years, from 30 years down. The most common mortgage is fixed for an initial period of five to ten years, after which the rates are reset. Since 2008 the proportion of mortgages fixed for more than ten years has sharply decreased.  

Commercial banks are the dominant mortgage originators, followed by special mortgage banks, insurance companies, pension funds and savings banks. Half the mortgages are made through intermediaries; at least two large chains of intermediaries exist.  

The mortgage market is highly competitive, which has extended the range of products and decreased lending margins. Lending criteria are being strengthened by the Authority for Financial Markets.

The maximum LTFV[1] was set at 112 percent in 2010. The 12 percent over 100 percent includes transactions costs for buying existing homes and must be paid back in seven years. The proportion of total loans with a current LTFV above 100 percent was around 40 percent at the end of 2009. Only loans with a National Mortgage Guarantee (NMG) are allowed a 112 percent LTV for a 30-year loan (standard in the Netherlands). The average loan size to annual income ratio is about 4:5. In the first half of 2010, the average loan amount with NMG for home purchase was €195,000.  

In the social rental sector, housing associations finance renovations and new housing projects by rental cash flows and loans from the capital market, The Bank of Dutch Municipalities (Bank Nederlandse Gemeenten) is the market leader with respect to the financing of housing associations. When such loans comply with certain conditions, they can be guaranteed by the Social Housing Guarantee Fund (Waarborgfonds Sociale Woningbouw), which was established by housing associations in 1983 and is a private fund with close ties to the government—i.e., central government and all municipalities in the Netherlands provide back-up funding.  

The European Commission has been active in streamlining the various European housing subsidy systems. The following agreements were made with the Dutch Minister of Housing:

  • From 2010, 90 percent of the houses in the social rental sector below the rental subsidy limit of €648 per month will be allocated to households with a tax income up to €33,000.
  • The home expenses subsidies for low-income home-owners are not extended.   The only subsidies left after 2009 for home-ownership are those managed by the Foundation for Dutch Municipalities to Stimulate Housing (Stimuleringsfonds Volkshuisvesting Nederlandse Gemeenten), which provides interest-free loans for first-time low-income buyers in participating municipalities.  

The Homeownership Guarantee Fund (HGF) (in Dutch: Stichting Waarborgfonds Eigen Woningen) is an important instrument to stimulate home-ownership through its NMG (National Mortgage Guarantee). The foundation started in 1993 and issued its NMG product in 1995. HGF is a private organization with close ties to the government. In case the reserves of the foundation (2009: €620 million) are insufficient to back its outstanding claims, the central government and municipalities will provide interest free loans. After 2011, only central government backing will remain for newly supplied mortages.

Qualifying borrowers with a NMG receive a discount on the interest rate on their loans of up to 80 basis points. In case of a foreclosure and a remaining outstanding debt to the bank, the foundation can take on the debt under the condition that they behave as good “housekeepers.” Borrowers pay a single up-front fee of 0.55 percent of the loan amount. This fee is deductible from income tax.  

Due to the credit crisis, the maximum loan amount for the purchase of a homethat can be guaranteed was increased to €350,000 from €265,000 as of July 1, 2009. This is a temporarily measure that expires in 2012.  

NMG’s guarantee systems expanded as a result of the poor mortgage market. In 2009 and the first half of 2010, the proportion of new mortgages with a NMG increased from 50 percent to 80 percent. In terms of volume, more than 100,000 guarantees were supplied in 2009. The forecast for 2010 is 120,000 guarantees.  

The RMBS market was growing before the downturn and is stabilizing. The outstanding pool balance at the end of September 2009 was €184.3 billion (US $273.74 billion), roughly 30 percent of outstanding mortgage loans. Main risks are high LTVs, extension risk, and prepayment risk (lenders allow 10 percent to 15 percent overpayment without penalty and at very low costs at reset dates; tax benefits keep prepayments relatively low, however).

[1]LTV in the Netherlands are calculated and reported on the basis of foreclosure values, i.e., the estimated value of the property in case of forced sale as well as market values. Foreclosure values as determined by the Dutch Association of Estate Agents and lenders can vary between 80 percent and 90 percent of market value. Loan-to-foreclosure-values are therefore not quite comparable to other countries.

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Erasmus University