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Monday, 19 May 2014

The ‘race to the bottom’ has started again for mortgage interest rates in The Netherlands. How realistic is it to fear another mortgage bubble?!

How erratic is it to talk about a new mortgage bubble, when the Dutch residential housing market is hardly stable after six years of decline?! Structural sales growth, as well as price stabilization, yet seem tiny spots at the horizon! 

Still, it remains an intriguing question, as far as I’m concerned.

At the end of last week, Het Financieele Dagblad ( published an interesting article about the increased competitition on the Dutch mortgage market and the downward effects that this development had on mortgage interest rates in The Netherlands. 

The article brought back some spooky memories of years past before the Great Crisis emerged:

The interest on mortgages is declining rapidly, due to the increased competition between money suppliers. More and more insurers and pension funds start to invest their money in Dutch mortgages. Insiders in the mortgage industry expect that the competitive battle will last throughout this year. “This industry has come back to life’, according to managing director Paul van der Meijs of De Hypotheker, the largest chain of independent mortgage agents in The Netherlands.

After a number of large insurance companies started an offensive at the Dutch mortgage market last year, Van der Meijs sees now that smaller insurers and pension funds are also investing their money into mortgages.

Yesterday, the Belgian supplier Argenta Spectrum lowered its ‘ten year fixed’ rate to 3.4%. Twelf months ago, the lowest ten year rate for mortgages still amounted to 3.95%, according to De Hypotheker.

The Dutch banks confirm the tougher competition. ‘ING does indeed see more competitiveness, now that the Dutch housing market is cautiously improving’, according to a spokesman. For the time being, the competition comes from domestic insurers and pension funds, rather than from foreign competitors.

Pension funds usually don’t invest in mortgages directly, but rather use an investment fund. Their increased interest can be noticed from the mortgage fund of Dutch insurance company Aegon. Pension funds already invested €450 mln in this fund. According to a spokesman of Aegon, the €500 mln ceiling of this fund will probably be raised, due to the strong demand.

According to Bouwe Kuik, adviser of IG&H Consulting, mortgages are interesting investments. ‘The housing prices have dropped sharply and will probably not further drop. Besides that, the investment conditions have been sharpened. This offers investors an interesting yield at a relatively low risk.

The stronger competition comes at the expense of the margin that banks earn on mortgages, according to financial director Kees van Dijkhuizen of ABN Amro. ‘However, the margins are yet higher than those from before the financial crisis’.

Pfeeew, that is a relief: we are at the brink of starting the same mortgage madness again, but ‘fortunately we are still earning higher margins than before the credit crisis’ (see red and bold text).

The situation on the Dutch housing market in the years before the crisis (2007-2008) had been the result of three crucial factors:
  • (Artificial) scarcity of owner-occupied dwellings being for sale in The Netherlands;
  • The ample amount of available mortgage money in the market, which was distributed through mostly amortization-free mortgages, at extremely low, long-term fixed interest rates;
  • A total lack of risk-awareness among both mortgagors and mortgagees, which led to irresponsible excess crediting, culminating in mortgages of well over 120% of the sales value of the premises. Some mortgages even amounted to 7 times the annual income of the mortgagee. ‘Why bother, the housing prices in The Netherlands will remain rising?!’ 

These three factors led to housing prices going through the roof and a mortgage debt in The Netherlands, amounting to 99% of the Gross Domestic Product in 2008 (i.e. €592 billion mortgage debt vs €594 billion GDP | data courtesy of national bank De Nederlandsche Bank and the Central Bureau of Statistics).

Although the Dutch population already started in 2007 to ‘draw the line’ for the ever rising housing prices, the total amount of mortgage debt still increased until 2012 (see the same sheet of the Dutch national bank), turning mortgage debt into a millstone for numerous households.

And at this very moment, we have only just started with the process of unwinding our national mortgage debt.

With the news about the soaring competition between the different suppliers of mortgages, it seems that at least one – but probably two – out of three aforementioned factors, responsible for the last mortgage bubble, is back 'en vogue' again:
  • There is yet again a massive amount of available money in the market, at again ridiculous rates for long-term fixed interest; 
  • The demand for owner-occupied dwellings is still at sub-par levels and I do expect that prices might slightly drop further in the coming months. Nevertheless, there is definitely a latent demand for owner-occupied houses in the market, that could easily exceed the supply of houses for sale. 

Today, I checked out the Housing Dashboard from the Dutch registration service Kadaster ( and it came up with some interesting charts:

Number of Registered Sold Houses
Data courtesy of
Click to enlarge
Average Sales Price
Data courtesy of
Click to enlarge

Number of Mortgages
Data courtesy of
Click to enlarge
Average Mortgage Amount
Data courtesy of
Click to enlarge

Total Mortgage Amount in millions of €
Data courtesy of
Click to enlarge

Of course, the whole situation on the Dutch housing market is yet far from “bubblicious”, as these charts show. 

At present, there are only cautiously rising sales numbers and fairly stable sales prices. On top of that, there are only slight increases in the number of supplied mortgages and the average height of these mortgages.

People are yet very reluctant to buy a new house at this moment, as they still have worries about their financial situation in the near future (general uncertainty, looming unemployment and diminishing purchase power) and don’t dare to take a high mortgage on a new house yet, in spite of the current, extremely favourable interest rates.

However, if the economy will indeed improve in the coming months and this would indeed lead to increasing consumer confidence and soaring risk appetite among both consumers and suppliers of loans, then crazy things could start to happen again.

This is the main reason that I’m not exactly happy about the bigger supply of extremely cheap mortgages these days. 

Of course, it is a different situation nowadays, due to the new regulations for mortgage supply, in combination with customer risk. 

These regulations have been established to protect the customer (i.e. the consumer) against excess crediting and the lenders against non-payment risk. If these regulations will be maintained strictly, it will be virtually impossible to obtain excess crediting in a stable household situation.

Nevertheless, history learned at various occasions that when there is a desire for higher loans and more risk among both lenders and borrowers, the government regulation is ‘not carved in marble’ after all. Government officials will always be sensitive for pressure, coming from lobby groups and from their grassroots, to enable favourable regulation.

When all three aforementioned factors on the Dutch housing market will be reinstated again, the next housing bubble will be the unavoidable result. 

Mark Twain is said to be responsible for the following quote: ‘History doesn’t repeat itself, but it often rhymes’.

I hope that this does not become true with respect to a new mortgage bubble in The Netherlands.


  1. In the Netherlands, the price of housing for the younger generation sub 40 (say students, young professionals, and parents of young children) went up 200% between 1993 and 2008. I mean: they tripled in only 15 years time. A ridiculous, wreckless and harmful price explosion.

    Were this a price explosion of some kind of luxurious goods, such as restaurant dinners or alcoholic drinks, it wouldn't have been so ridiculous, wreckless and harmful. Because people are mostly free to decide whether to consume or not.

    But this is about an essential good: housing.

    And were this a price explosion of a relatively cheap essential good, say 'bread' or 'electricity', then it wouldn't have been so harmful either. None of us would like to pay 5 euro's for a loaf of bread, and we would all curse tripled electricity bills - but we would survive rather easily as compared to tripled prices of buying or renting a house.

    I see two kinds of serious damage of the wreckless price explosion. First, young people's quality-of-life has been seriously hampered, as compared to the generation before them. Specially young parents have to pay a MUCH larger part of their income on mortgage or rent, have to work more days every week. As a result they have to pay more for daycare for their children, for which they are less able to take care themselves, which means also a lesser contact with and involvment in the upbringing of their children. Many parents only see their children in the 'rush hours' during the morning and dinner rituals. More and more teenagers get home from school and find nobody waiting with the traditional 'cup of tea and attention'.

    The second kind of damage that the price explosion caused, was the hole in the national treasury. Because of the extraordinary Dutch rules for mortgage deduction, which effectively subsidizes the acquisition of luxurious private property, more and more billions of public money went - and are still going - into private pockets. Luxurious houses for the happy few who can afford it, get much more public subsidy than standard houses for average Joe. And for a long time, the mortage deduction rate was more favourable for people with a higher income than with a lower income. Crazy? Yes, but a craziness to which Dutch 'liberal' voters were extremely attached. And still are.

    The 'hole in the national treasury' has widened from 5 to 15 billion euro. And guess what: it has hardly suffered from the budget cuts and 'austerity' measures that the Dutch governments are so attached to. Some social groups have suffered from the crisis much, much more. People lost jobs, they lost purchase power, people dependent on the social system (the jobless, the chronically ill) have seen a sometimes huge decline in income, students loans have been close to abolished. Tens of billions of public money have been 'saved' at the expense of private, personal hurt. Yet the expenses for mortage deduction have hardly decreased.

    Like Ernst suggests, all conditions for a new 'housing bubble' or price explosion are met. Dutch people can only think & speak of a 'healthy' housing market in terms of *increasing* prices. We have been lied to for years and years that lowering prices is bad and unhealty and needs to be 'repaired' by government, by throwing more public money. And that increasing prices are a 'good sign'.

    When it comes to the Dutch housing 'market' (I hesitate using that word because that 'market' is so terribly artificial and not 'free' at all), the Dutch have learned nothing. And those who are in charge and enjoy the highest profits, don't *want* to learn at all.

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