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Tuesday, 27 September 2011

Dutch mortgage market implodes: 25% less mortgages sold in the first weeks of September, Year-on-Year

There is news that is surprising and there is news that is, uhm,… not surprising.

The following newsflash is definitely in the second category for the steady readers of my blog: The Dutch mortgage market shrunk by 25% in the first weeks of September, compared to September 2010.

The Dutch financial newspaper Het Financieele Dagblad ( publishes this story on the continuing misery in the Dutch Residential Real Estate (RRE) market. Here are the pertinent snips:

The number of applications for mortgages has landed at a new depth. By a combination of new ‘conduct of business’ rules for banks and general insecurity on the economy, the public interest for new mortgages dropped sharply.

It seems that the positive effect of the lowered conveyance duty on the Dutch housing market has already finished, only one month after introduction of this €1.2 bln government measure. The cabinet Mark Rutte wanted to set the stalled Dutch housing market free, by reducing the conveyance duty to 2% from 6% of the net purchase price.

In July, there were temporary more applications, but afterwards it went again down the hill. The Mortgage Data Network (HDN),  a large processor of mortgage applications in The Netherlands, published in a press release that in August only 2000 applications per week came in for a mortgage offer at its website; the first step for acquiring a mortgage.

This was only 50% of the number of applications in July. And not only holiday month August was bad. In the first three weeks of September the market was not much better; only 2400 registered applications per week. This is more than 25% lower than in September last year.

The data of the HDN concerns about 50% of the whole Dutch market. The Land registry offices that register the whole market, have only data on mortgages that have actually passed at a notary. Trends are therefore only visible months later.

Since August, the new ‘Conduct of business code for Mortgages’ came into force. Banks, under influence of the Dutch Authority Financial Markets (AFM), became more strict in their credit supply. A house may only be purchased with an interest only-mortgage of less than 50% of the purchase prices. In the years before, this kind of mortgage could be acquired for the full purchase amount.

Also mounting insecurity on the European economy (Greece) added to this drop in interest.

Again, this news message zooms in on the circumstances that make acquiring a mortgage more difficult or risky.

But again, insiders fail to look at the main causes:
·    Dutch housing is too expensive in general and especially for the starters on the housing market;
·    People that own a house, but want to sell it are prisoners of their extremely high mortgages, while being under water with their house. They can't lower the price of their house, as they would get stuck with residual debt.

In last week’s overview of Dutch housing, you could see that the price growth in all categories of Dutch housing has been extreme (more than 180% in only 13 years), as in a bubble. This bubble is now slowly deflating, but this deflating process will take years and years.

The main reason for this is that the Dutch finance minister Jan Kees de Jager, banks and insurance companies, realtors and the home-owner association all kick the can down the road, hoping to avoid a structural lowering of housing prices in The Netherlands.

But as the Dutch housing market reached ‘Peak Housing Prices’, the lowering of housing prices is inevitable. But it will take a very long time to happen. And all those years the housing market will be locked.

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