Today, the Dutch Bureau of Credit Registration (BKR) presented disturbing data on the Dutch mortgage market in their so-called Mortgage Barometer for October, 2012.
In October, the number of mortgage holders-in-arrears has risen by 20% y-o-y to 72,000 and this was not the only disturbing news from this barometer. Here are the pertinent snips from the press release issued by BKR:
The number of payment arrears on mortgages increased further in 2012. At this very moment, 72.367 homeowners experience difficulties in paying their mortgage. An increase of about 10,000 people since January 1, 2012.
Based on the latest data, BKR expects that the number of homeowners in arrears on their mortgage will reach 76,000 at the end of this year. Although still a limited number in terms of percentage, it is a serious signal. ‘Not paying your mortgage is one of the last things that you do. This is surely preceded by a lot of other financial misery’, according to general manager of BKR Peter van den Bosch. ‘Please keep in mind the consequences of a foreclosure. As a consequence of the dropping housing prices, increasing numbers of houses are underwater. A foreclosure would certainly leave people with high residual debt’.
Problems caused by excess debt have been on the rise for years already. Most arrears are measured at the Dutch internal revenue service, utility companies, building cooperatives and healthcare insurers. ‘BKR doesn’t have plain sight on these arrears. Credit suppliers don’t see those either when someone comes around for a loan’, says Van den Bosch. ’BKR only looks after 20% of the arrears. That is too little. We should enter new ways, like an early-warning system, to be able to help people’.
A number of 72,000 homeowners in arrears doesn’t sound like an awful lot, as the number represents only 1.3% of the approximately 5.5mln homeowners in The Netherlands.
However, the message of general manager Peter van den Bosch of BKR was that the mortgage redemption is the last bill that homeowners refuse to pay. Before they stop paying the mortgage, a lot of other bills have become in arrears first.
Van den Bosch further explained this in an interview with BNR business radio, of which I print a transscript here:
“The current arrears situation is twice the number it was, back in 2008. In the years before 2008 when people couldn’t pay the mortgage anymore, it was possible to sell the house relatively easy and against a good price.
Today is different: selling houses is very hard nowadays and often a residual debt remains after the transaction.
In my opinion, the mortgage debt is only the tip of the iceberg. Therefore don’t underestimate the signal we got today: mortgages and banking debt are at a relatively low position in the Arrears Top Ten. Normal bank loans, like revolving credit are only at the seventh place, when it comes to the size of debt in arrears.
The biggest creditor nowadays is the Dutch internal revenue service (IRS): more than 300,000 people can’t pay their tax-debt anymore, making the sum of this debt about 7 times higher than the outstanding mortgage debt in arrears. Other large creditors are utility companies, telecom companies and health insurers.”
I’m convinced that Peter van den Bosch is right about tax and utility debt, although he stated earlier in the press release that he doesn’t have a clear view on the tax data yet. People, knowing the risk of foreclosure and residual debt, rather wait with paying their tax and energy bills than letting their mortgage get in arrears, as the latter could have grave consequences.
That, in spite of the previous finding, the number of mortgages in arrears will grow by about 20% in 2012 is a clear sign that the financial situation of private citizens is deteriorating rapidly.