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Monday, 29 October 2012

Letter from a reader: the consequences of being under water with your mortgage and how to get out of it

Today, I received again a letter from a reader, Melissa, who is in a dire financial situation as a consequence of the changes at the Dutch housing and mortgage market. I print it here for the benefit of my readers.

Dear Ernst

I hope that you don't mind my contacting you directly.  I am in a terribly difficult situation, and I am trying to find some help and information in english, as to what I should do about my problems that I have.

I have just been reading your article on :Two reasons why the Dutch housing and mortgage market is critically ill. I was wondering if I may ask you for some personal advice?

My background and current information:

I have a house in holland, and I returned to the UK.  My house is in negative equity, so I cannot sell it (at least about Euro 50 - 60k).  I have let it to a company, who fill it with their staff.

Unfortunately, the rental income doesn't cover the monthly costs associated with the house, and due to my circumstances changing, I don't earn anywhere near what I earned as an expat in holland.  I have been trying so hard for the last 3 years to make-up the balance on the bond every month, but have got to the point of just not being able to anymore, as I have sunk all my savings into keeping the house/mortgage running, and now have to face the fact that I simply cannot afford to do this anymore.

I have been hoping that either the property market would pick up so that I could sell the house, or that the rental market would pick up, so that the rental income would cover the costs.  Obviously neither of these things have happened.

After reading your article, and thank-you for this, as I have been battling to try and find some information on this subject in english, I am contemplating, that I pay the bank what I can every month only.  And based on your article, you would recommend that I approach the bank directly and tell them up front about my situation, and ask for their understanding of this?

My concern about doing this, and the reason why I haven't done this so far, is that I worried that the bank sells the house for nothing, and then I spend the rest of my life with them hounding me for a massive amount of money, that I cannot possibly repay.  This may be out of your remit, but can they chase you for debt when you are out of the country?  I appreciate that I would be blacklisted in Holland, but as I am not planning ever to go back there, it's of little consequence.

You also mentioned something about tenants rights.  Does the fact that my house is let, mean that my house is somewhat protected from being sold by the bank?

Apologies for approaching you with my problems.  I am so desperate.  If you have any thoughts or advice, or an idea of where I can get some advice, it would be greatly appreciated.

Dear Melissa,

First, I'm sorry for the awkward situation you are in. You have it in common with many other people in The Netherlands, but that is hardly comforting.

I have mixed feelings about the fact that you're renting your house. Although it pays (part of) the bills, it could get you in trouble with your bank. I don't know if it is prohibited for you to rent the house under your personal mortgage conditions. My advice is to read your mortgage conditions very well and check if there are statements about renting the house or not.

On top of that it is a saddening conclusion, that even the firm that rents your house seems not able to pay your whole mortgage amount. If I read things well, the firm pays only a part of your mortgage.

This is a clear sign that you are bleeding money currently, together with your statement that it took all your savings to keep the house until now. Nobody wants you to get into dire straits. My advice: cut your losses and try to sell the house, even if it leaves you with a residual amount of €50,000 - €60,000. You abolish the uncertainty of not knowing what your house will yield in the future for the certainty of having a residual debt that won’t become higher anymore.

Therefore I would be open towards the bank. At this moment you could still make some agreements with the bank, as you are not in arrears yet. It is not in the bank's interest to foreclose the house, as a limited yield from an auction would leave them with a gap in their balance too. They might have some good ideas on what you could do to sell the house after all. They can also give you a clue about how they would handle the residual debt, as it is not in their interest that you can’t pay it anymore in the near future.

What I can't promise you unfortunately is that the housing market will improve very soon: simply because it probably won't for another 5-10 years.

And I also can't advice you to 'hit and run' with the residual debt: the world is turning into a global village and information exchange between internationally operating banks could mean that you could have a hard time in the future getting a mortgage in your own country.

Be fair and square to the bank and to yourself and realize that there is a mutual interest between you and the bank to make the residual debt as low as possible. 

Latest response by ‘Melissa’

My concern about selling [my house], is that in the same way as this would realise the loss for the bank, it would realise it for me too.  I can't be in a situation that I owe the bank Euro 60,000 and they are expecting to repay this?  And I presume that this would be re-evaluated as a personal loan, and they repayments would be extreme.

I understand your comment about letting the house, but without this, there would be no payment to the bank at all, so whilst in a perfect world, I would not let it out, the world is far from perfect right now.  To clarify, the company that rents it pays near enough the mortgage, and it is market related.  My problem is that I have other costs associated with the house that have to be paid too.  So it is costing me about Euro 500 a month, and I just cannot afford it.


I printed these letters, because they show you the flipside of being in a process of debt destruction. While necessary for the debt bubble to deflate and for the economy to become healthy again, it causes financial hardship for many people.

Especially people that went through a change in their personal / financial situation can suffer from the consequences of the sinking housing prices, when they should sell their house, but can’t due to the residual debt.

Unfortunately, there are no easy solutions in this case. Neither for politicians, nor for me. If politicians or special interest groups like NVM (realtors) or the VEH (homeowner association) promise you an easy way out, don’t believe them. Their ideas are often built on the quicksand of make believe: the makeable housing market.

The housing prices will drop as these have been too high during the last 15 years:

Maybe not too high, if you only look at the net interest amount to be paid after MID deduction.

Maybe not too high, if you look at the fact that people didn't pay for amortization of their mortgage.

However, housing prices were much too high for people and banks to feel comfortable in the end.

People and banks knew instinctively that their mortgage would become a timebomb when the interest rates would rise strongly and their mortgage interest rate had to be rolled over. People also knew that they had to pay for their house after all, when the mortgage would have matured and they saved too little money from their investments to pay the full mortgage amount. That is the situation that a lot of people are in currently. In 2007, the Dutch people decided that 'enough was enough' for rising housing prices.

Therefore, the only solution in my opinion, is to let the process of debt destruction do its work at the Dutch housing market. This process should be helped by abolishing the Mortgage Interest Deductability (MID), as this policy in combination with the artificially low interest rates of the last 15 years created this bubble in the first place. Then, when the demand for quality housing equals the available supply of good houses, prices will stabilize. However, that will be at a lower price level than currently.

Finally, if you are in an equal situation like Melissa and you want to talk with a specialized consultant on the topic of mortgages being underwater or debt restructuring, please get in touch with my friend Sophia van Scheindelen ((

I met Sophia and her partner during last year’s holiday in Spain. She is an intelligent and savvy woman with sensible ideas on the Dutch housing market, who knows that many things have gone wrong concerning mortgages during the period 1995 - 2007.

On top of that, she is specialized on the subject of debt restructuring for people with mortgages and loans gone awry. Get in touch with her; she might help you to find a way out of this misery.

And please do not forget that, while debt destruction is a very violent and ruthless process, the life after a period of debt destruction will become better again and will lead to new periods of prosperity. Keep the faith alive.

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