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Tuesday, 28 February 2012

What mortgage debt and uncertainty do to people; letters and comments from readers of Ernst’s economy for you

My last article Investigation by Panteia shows: 27% of Dutch people is currently in arrears handled about the indebtedness of Dutch people.

Although the fact in this article were shocking, it is in reality nothing more than cool statistics. Therefore I want to show you the flipside of this story; that of real people that are heavily indebted at this very moment. To show you that the aforementioned title is not about statistics, but about people like you and me.

During last week, I have received not less than three comments from readers of my articles on the Dutch housing market. And coincidence or not, these were all expats from other European countries that had a much too expensive house and an excess mortgage in The Netherlands.

All three people were now worried sick about their enormous debt and all three were already in arrears for a number of periods. Their problem: how to get rid of their house without being stuck with a large residual debt. An almost insolvable problem in the current Dutch housing market.

I want to share these letters and comments (on a basis of anonimity) and my reaction to it for the sake of answering some frequently occuring questions of my readers. If the answer of your question is not in the following information, please write to me at I will do my best to answer all questions within a few days.

And I want to emphasize to my readers: if you are going to be in an arrears situation very soon, if nothing happens, NEVER wait with acting until it’s too late. Be proactive and cooperative towards your bank or mortgage agent. It is often much cheaper and more certain for banks to help you with temporary reduced payments than to let you get in a default situation. So being proactive might save you a lot of financial trouble in these trying times.

“Anonymous” wrote on February 21st:

Hi Ernst.

I found your website by chance, googling about mortgage default in the Netherlands...that's right, I'm another victim!

Perhaps you could give me some quick advice - or at least share some knowledge since is so hard to find information on the subject. I have a house in Amsterdam and due to separation from my ex-partner, the situation now is very different than when we bought it. We're both expats, he still lives in the property but I no longer live in the country. I've been doing my outmost to keep paying my part of the mortgage, hoping the house will sell. It's been over a year the property is in the market with hardly any offers, except speculative ones about 30% less than our asking price.

My question to you would be - what are the consequences of a default in the mortgage? The house's already been for sale for 14 months, so the bank can see we're trying to get the best price. But my main concern is the outstanding debt after an eventual sale does happen. How do banks normally deal with the remaining loss? What are the alternatives for debt relief for a person like me?

Would be great to hear from you and thanks for working on such an interesting blog on the subject. Buying a house in the NL was an emotional move - in the direction of having a home, not an investment in the housing market - but life turned out to take me into a different direction and the current economy doesn't seem to forgive or even allow changes these days! Also, I've read in quite a few places that the expat community, like myself, is suffering with the housing crisis.

My reply:

I am very sorry to read that the two of you broke up. And unfortunately, I don't have an easy advice.

It is still possible to sell a house at the RIGHT price, but alas this is not the price that you want or need to have for it.

If you want to sell your house more quickly, you need to move your sales price closer towards the 'speculative prices' you were talking about, as these are the prices that people are seemingly willing to pay.

If I could give you one piece of advice, it is to talk with the bank that gave you the mortgage. Talk about your situation and about the fact that your house has been for sale for 14 months already. Ask them what kind of arrangements they can offer for a residual debt, when it emerges.

Be proactive and please wait not until the economic sh*t hits the financial fan.

I think that banks appreciate it when you step forward yourself.

One other thing you could do is letting your house for rent, but do this only with a renowned and bonafide mediation bureau specialized in distinguished tenants with short contracts (preferably expats), as tenant protection is very strong in The Netherlands. And don't leave your house empty, because of the 'krakers'.

Unfortunately I don't expect the housing market to recover quickly and I do expect the housing prices to drop for at least another 20%.

But please don't give up and be proactive towards the people that gave you the mortgage.

“Eva” wrote me on February 21st:

Hi Ernst,

I have been reading some of your blog posts on the dutch housing market with interest. You seem to have a great insight into the situation and helpful information.

I was wondering if you had any current updates/ thoughts on the housing market and the negative equity situation so many people are in.

I have an apartment in Amsterdam for which the value is less than i owe and i just can't seem to sell the apartment after 18 months on the market. I desperately want to sell the place and do right by all concerned but i just can't afford to sell lower than i owe yet i also can no longer afford to pay my mortgage and am already 5k in arrears. I pay a sum each month but its approx half of my mortgage and soon i cannot even afford to do this.

What happens to people in this situation? I understand that the default rate is low in NL but surely since 2008 this number is on the increase sharply. I no longer live in NL and its so hard to manage this whole thing and understand the process. I have NHG (national hypotheek guarantee) but A) it looks likely i would no longer qualify under NHG and B) I would still then owe NHG the gap in debt instead of the bank so its all the same isn't it?

I'd really appreciate any advice you have either on the subject or steps to take or even anyone to contact for help.

I replied:

Dear Eva,
I’m afraid that the situation on the Dutch housing market will remain difficult for the coming years, as we are in the middle of a process of debt destruction. And although Amsterdam will always remain an attractive city, the housing prices there have become much too high over the years.

Unfortunately, I don’t have any good news for you on this topic, as I expect the housing prices to take a further dive for at least 20%.

The negative equity situation is widespread and it sure will deteriorate, but the only response we get to it is that our current government ‘assumes the ostrich position’ and hopes and prays for the best.

 I have two advices for you: call the bank that supplied you the mortgage and talk with them about your situation.

And second: if you read Dutch, or know someone that does, please read the information you can find under this link:

 I couldn’t find this information in English, but maybe you could give them a call ( (0900) 11 22 393 (€ 0,35 p/m)). Unfortunately this is a paid phone number that you cannot reach from outside The Netherlands. But you could send an email to the NHG and explain your situation.

And about the NHG, I don’t think that you owe the NHG anything after they stepped in, but I don’t know that as I never had an NHG.

My strong advice: please get in touch with the NHG, the bank and other people mentioned under the link, as they probably can help you further.
I wish you all the best with your situation.

“Kevin” wrote today:

Hi Ernst

In 2005 I purchased a property in The Hague with a 120% mortgage with ‘“###”’. I am an expat and have been working in the Netherlands since 1999. As you rightly pointed out in one of your blogs, the Dutch banks were throwing money at me, so much so that we bought a second property in 2008 with a similar 120% loan this time with ‘“###”’.

The plan was to keep the first house as an investment property and rent it out. Obviously this wasn't the best decision I have ever made considering the current economic climate and housing situation in Holland.

I see that you have posted many blogs dealing with this subject, and I am hoping that you may have some advice for me.

When my tenant moved out just before Xmas, things were a bit tight financially and I became about 60 days in arrears on my mortgage, this obviously raised a flag with the people at “###” and they investigated my situation. Since then, they have contacted me and told me that I am not allowed to rent out my property and that I would have to sell it if I couldn't afford the mortgage repayments. They have been very adamant about this.

What I don't understand is that there is no financial incentive for the bank to do this, they will be losing money by forcing me to do this. I understand that I will still be responsible for whatever short fall is still owed after selling it, but surely its in both the banks and my best interest to rent it out so that I don't fall too far behind on the mortgage payments? I know that you mentioned this to be the ostrich with its head in the sand approach, but I am not familiar enough with the Dutch banking system to see any other way out.

Any comments or advice will be greatly appreciated

I replied:

Hi Kevin,
To answer your question, I must tell you something about the Dutch housing market.

In The Netherlands there are strong laws for tenant protection. It is very hard to get a tenant out of a rental house, if he doesn’t want to move. The law almost prohibits houseowners to take measures against tenants unwilling to leave, like drastic rent increases or (il)legal sanctions. Banks know this very well.

What initially might seem like a smart idea to earn back some mortgage euro’s, can turn into a nightmare when you want to sell the house, but the tenants don’t want to leave it. Almost nobody in The Netherlands wants to buy a house with tenants in it and almost no bank wants to give you a mortgage for it, unless you are a ‘professional’ landlord with multiple houses and a business plan.

Many banks have special anti-tenant clauses in their mortgages and it seems that “###” is no exception.
So while you figure that it is not in the bank’s interest to not allow tenants, SNS sees this different. Your house can be more easily auctioned without tenants in it and it will make a higher yield in case your arrears lasts too long or in case you default in the process. And you will stay responsible for the residual amount anyway, that is unless you go bankrupt.

But if you default on your mortgage and there are tenants in the house, the auction value for your house will be very low and the residual amount will be very high. If you can’t pay this amount back after all, the bank will have to make a huge write-off on your house.

That is the reason for “###” behaving like it does.

My advice: go to the bank, explain your situation and try to find a way out together with them. Be proactive towards them and tell them the truth, the whole truth etc. The more you cooperate and try to find a solution with them, probably the more cooperative they will behave, for instance by allowing temporary lower interest / amortization payments.
Don’t try to outsmart “###”  by letting in tenants in your house behind their back, because the banks have the biggest legal guns and they can ‘shoot’ you without blinking. And you need them more than they need you.

One more time: these are real people with real problems. If you are encountering financial problems on your mortgage yourself , don’t wait, but act! 

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