Group Economics
Housing Market Monitor
Philip Bokeloh 020 38 32 657
Strict regime keeps prices in check
22 December 2014
•
•
•
Economic recovery and lower interest rates are driving the recovery of the housing market
Pent-up demand, expanded gift tax exemption and first-time buyer loan scheme are providing temporary extra support
Tighter mortgage criteria will restrain future price increases
What is the current situation in the housing market?
A strong recovery is under way in the housing market, with
prices finally rising again after five years of decline. In
November, the Statistics Netherlands/Land Registry price
index for existing housing was 2.4% higher than in the same
month a year ago, marking the eighth consecutive month in
which the price index increased. Barring a dramatic end-ofyear downturn, the average price increase in 2014 looks set to
work out at 1% - a clear uplift compared to the 6.6% slump in
2013.
Evidently, therefore, sales of higher-priced housing are picking
up. Alongside the actual sales of more expensive house types,
this is also noticeable in the sales shares of the higher price
categories. While the share of houses up to EUR 100,000 is
shrinking, that of housing above EUR 300,000 is expanding. A
shift towards more expensive housing can also be seen in the
price segment between these two categories. The growing
shares of more expensive houses point to renewed mobility in
the housing market, despite 1.5 million homeowners still being
‘under water’.
Encouragingly, the price increase is also broadly based. Apart
from Groningen, Friesland and Zeeland, all provinces saw
prices strengthen. And the upward momentum is building
across the full spectrum of house types, albeit that apartments,
terraced housing and end-of-terrace properties are rebounding
more vigorously than semi-detached and detached homes.
Figures of Calcasa confirm this picture. According to their
calculations, home values are rising in 90% of the 12,000
neighbourhoods, with low price categories accelerating faster
in value than the more expensive categories.
Sales are also clearly picking up. In the eleven months until
end of November, 128,000 transactions were concluded.
Taking account of the traditional buying spurt at the end of the
year, the number of transactions in 2014 may well exceed
145,000 homes, 35,000 more than in 2013. Intensified activity
is also visible in the new-build segment. According to the NVB
(Association for Developers and Construction Firms), over
18,000 new-build homes were sold in the first ten months of
the year, 6,000 more than in the same period last year.
Construction firms are in a more optimistic mood. They have
more work on their hands and their order books are filling up.
In line with the price increases, the upturn in house sales is
also taking place across a broad front. In geographical terms,
sales are growing robustly in all provinces, though the biggest
surge can be seen in the Randstad conurbation. Cities with
strong economic dynamics, like Amsterdam and Utrecht, are
witnessing a particularly sharp uplift in the number of
transactions. Moreover, all house types are finding favour with
buyers. In the third quarter, sales of apartments, terraced
housing and detached homes jumped almost 40%. Semidetached and end-of-terrace housing also did well, advancing
almost 30%.
Sales share of higher price categories is rising
% of total sales
60
55
50
45
40
08
09
10
Below EUR 200.00
11
12
13
14
Above EUR 200.000
Source: Land Registry
Nor is the reduced support for first-time buyers proving to be
an insurmountable obstacle for the mobility in the market. A
Land Registry study shows that first-time buyers are
increasingly moving into new-build housing or into properties of
people who are stepping off the property ladder.1 Only one in
three first-time buyers opt to buy from homeowners who are
moving up the property ladder. In 2005 the ratio was still two in
three. As the entry of first-time buyers on balance generates
fewer second-step home purchases, the housing chain is
shorter than previously thought.
Is it already a seller’s market?
No, we have not reached that stage yet. The sharp rise in the
number of transactions has yet to lead to a substantial decline
in the for-sale housing stock. One reason for this is that
1
Marwijk, R. van, (2014) Starters op de koopwoningmarkt, Land Registry
Housing
Market Monitor - 22 December 2014
homeowners who are eager to move see the improving market
as a good opportunity to put their house on the market. In
addition, hard-to-sell properties are remaining in the for-sale
stock for longer. According to the Dutch Association of Real
Estate Brokers (NVM), the number of withdrawals from the
market has even decreased to the lowest level since 2008.
Numbering over 207,000 properties, the for-sale housing stock
is still just as large as at the start of the year.
However, one thing is certain: with the current transaction
volume, the existing for-sale housing stock will take less time
to sell. The theoretical selling time is now seventeen months,
five months shorter than in January. Properties are not just
changing hands faster in theory, but in practice too. According
to the NVM, properties sold in the third quarter had been on
the market for an average of 122 days versus 133 days in the
previous quarter.
an average of EUR 247,000 in November 2014. The growing
number of contracts and the higher average mortgage sum
have boosted mortgage origination to EUR 46bn. In the twelve
months until the end of November 2013, mortgage origination
was still only EUR 39bn.
The growth in mortgage origination is also reflected in the
applications for mortgage quotes at Hypotheek Data Netwerk
(HDN), an organisation whose members include most
mortgage lenders. Until the end of November 2014, HDN
recorded more than 195,000 applications, over 60,000 more
than in the previous year.
Mortgage origination shows slight growth
EUR bn
150
120
Even so, the average duration of the existing for-sale stock is
still 395 days, which is very long. The main cause is the large
number of hard-to-sell properties. Homes that have recently
been put on the market soon find a new owner. Almost half of
these properties are sold within six months. But the chance of
a sale is much smaller for houses that have been on the
market for a longer period of time. According to Calcasa,
65,000 properties have now been up for sale for longer than
three years.
90
60
30
0
06
07
08
09
10
11
12
13
14
Mortgage origination
Source: Land Registry
Properties take longer to sell if the asking price is too high. The
average price of the for-sale stock is currently EUR 297,000, a
figure that is somewhat inflated by the relatively large number
of expensive homes in the for-sale stock. The asking price is
thus EUR 72,000 above the current average transaction price.
Previously, the difference was EUR 6,000 higher. The
narrowing gap is mainly attributable to the higher transaction
prices, because the average asking price has remained more
or less level since January. This stabilisation of the asking
price corresponds with the NVM report that fewer sellers are
reducing their prices.
Very gradually, the balance of power is shifting from buyers to
sellers, though the former still retains the upper hand. NVM
figures underline this. The difference between the last asking
price and the transaction price is now less than 5%, which is
better than at the start of 2013, when the difference was still
almost 7%, but less good compared to the period before 2009
when the difference was only 3½%.
Is the recovery noticeable in the mortgage market?
Definitely. The number of mortgage completions is rising
strongly, with over 211,000 mortgage deals being concluded in
the twelve months until the end of November. In November
2013 the comparable total figure was still 176,000. Moreover,
the average mortgage sum of these contracts has increased
slightly from an average of EUR 245,000 in November 2013 to
The majority of these applications concerns annuity
mortgages. Since 2013, mortgage interest relief is only
available for new mortgages with an annuity or straight-line
repayment schedule. As a result, the annuity share has risen
dramatically from zero to no less than 70%. The obligation to
make repayments entails that newly issued mortgages carry
less risk.
The credit risk is also being curtailed by the fact that home
buyers are less interested in mortgages with an LTV (Loan-toValue) above 100% and are more inclined to make down
payments on their home. The mortgage quotes at HDN
indicate that the LTV ratio has fallen to less than 90%. The
preference for longer fixed-rate periods is also growing
cautiously, which makes new mortgage contracts less
sensitive to interest rate fluctuations.
Against this, the loan-to-income ratio is starting to rise again.
At the start of 2013 the ratio was still four times income, but the
most recent reports now put the ratio at 4.5 times income.
Another development is the diminishing proportion of
mortgages with a National Mortgage Guarantee (NHG). At the
end of 2012, three in four transactions for existing homes were
NHG-guaranteed. The figure is now almost one in two. The
decline is mainly due to the successive reductions of the NHG
Housing
Market Monitor - 22 December 2014
limit, so that the number of properties eligible for the NHG is
steadily contracting.
Despite the higher mortgage origination volume, the
outstanding mortgage debt is shrinking. The total mortgage
debt amounted to EUR 660bn in June, EUR 8bn lower than a
year earlier. The fall was driven by a stronger tendency to
make mortgage repayments (in order to solve negative equity
problems), the low savings interest rates and the temporary
expansion of the gift exemption. According to the Dutch
Central Bank (DNB), voluntary mortgage repayments totalled
almost EUR 7bn in the first three quarters of 2014.
Where is the renewed confidence coming from?
Confidence in the housing market has rallied strongly. Since
the dip in December 2012, the confidence indicator of the
Homeowners’ Association (VEH) has risen steadily. In
November the indicator reached a value of 105, the highest
reading since the data series started in 2004. Even so, people
remain wary. A small majority of the surveyed households still
prefer to rent – a stark contrast with the pre-recession period
when an ample majority preferred to buy.
Households still show slight preference to rent
% respondents (average past 12 months)
80
70
60
50
40
To what extent is the economy helping?
The housing market is receiving a further stimulus from the
economic upturn. After two years of contraction, the economy
is expanding again, albeit modestly. Economic growth is no
longer dependent on foreign trade. Business investments are
also contributing. Thanks to their improved profitability and
better financial position, entrepreneurs are regaining
confidence. Accelerating industrial production is going hand in
hand with higher capacity utilisation rates, which is acting as a
spur on investments.
Higher business investments are good for the labour market.
The number of temporary employment hours is rising, as is the
number of vacancies. And despite job losses in the public
sector, both redundancy applications and unemployment are
decreasing. However the jobless number is only falling slowly,
because the brightening climate is prompting more people to
return to the labour market. The improved chances of finding
work is underpinning consumer confidence. Despite the
international tensions, confidence is greater than at the start of
the year.
A further factor is that the government will impose fewer tax
increases than in previous years, which will bolster disposable
incomes. The need for higher taxes is less acute now that the
government is no longer on the penalty bench of the European
Commission. Thanks to the radical public finance adjustments,
the public balance and public debt are now more in line with
the Brussels-imposed criteria. The European policymakers
also consider the risks in the financial sector to be acceptable.
All Dutch banks passed the stress test that the European
Central Bank (ECB) carried out this year.
30
20
08
09
10
11
Prefer to rent
12
13
14
Prefer to buy
Source: Homeowners’ Association (VEH)
The renewed confidence in the housing market is attributable
to a mix of factors. First of all, there is more certainty about the
tax regime for owner-occupiers. Another factor is that current
price levels are much more attractive for would-be buyers. The
combination of lower house values and lower interest rates has
made owner-occupied housing much more affordable. Net
housing costs excluding repayments as a proportion of net
income are historically low. Buying is also gaining lustre
compared to renting. Both in 2013 and in 2014, the average
rent increase was 4% in the regulated rental segment.
According to calculations of the International Monetary Fund,
the difference between the costs of buying and renting is near
the long-term average.
Furthermore, disposable incomes are being buoyed up by low
inflation. This has fallen to less than half a per cent, mainly due
to weak spending. Falling commodity prices are also a factor.
At the end of 2014 a barrel of Brent oil cost USD 60, a far cry
from the start of 2014 when the price was USD 55 higher. The
depressed commodity prices are strengthening purchasing
power and encouraging spending.
What role do interest rates play?
Extremely low interest rates are also driving the recovery of the
housing market. The Dutch government is paying less than 1%
on ten-year bonds, which is not even half the rate at the start
of 2014. In line with the government’s interest rate, the banks’
funding costs have also decreased. One important benchmark
for this is the swap rate. The swap rates have decreased
across the entire term spectrum.
The interest rate decline is partly attributable to the inflation
rate, which has sunk to a historically low level. Eurozone
inflation is now less than half a per cent, well below the ECB
target level of 2%. Due to the persistent weak inflation, more
and more people are expecting a moderate price development
Housing
Market Monitor - 22 December 2014
in the future. This is worrying the ECB, as it brings the threat of
deflation ever closer.
Faced with the falling inflation outlook, the policymakers in
Frankfurt have every reason to resort to further monetary
expansion. The ECB has already announced its intention to
increase its balance sheet by half to EUR 3,000bn. How it
proposes to do this remains unclear, but one measure is
certain to be the large-scale purchase of debt paper, including
bundles of mortgage-backed loans. This prospect is making
investments in mortgage loans more liquid and less risky,
hence the ongoing narrowing of the spread on mortgage
securitisations. RMBS spreads on five-year loans have now
almost halved.
Banks can raise cheaper funding
Swap rate curve with terms of 1 to 30 years
5
4
million households who wanted to move house within two
years, 260,000 more than three years before. The publication
‘Wonen in ongewone tijden’ even referred to a log jam of
house-moving plans and this log jam has probably swollen
further due to the income-dependent rent increases. Now that
prices have resumed the upward path, some households are
taking the plunge and fulfilling their long-held wish to move
house. This pent-up demand is giving the housing market
recovery a temporary extra impulse.
Whilst the effect of the pent-up demand is set to continue for
some time, the positive impact of the temporary expanded gift
tax exemption will soon be over. The expansion of the gift tax
exemption from EUR 51,000 to EUR 100,000 as introduced in
October 2013 has turned out to be much more popular than
anticipated – so popular, in fact, that the government is losing
too much tax revenue and is unwilling to extend the exemption
in 2015. The government had estimated that the exemption
would be used 20,000 times in the period from October 2013
to December 2014. But in September it transpired that the
exemption had already been used 50,000 times.
3
2
1
0
1
2
3
4
Average 2007
5
6
7
8
Average 2011
9
10 12 15 20 25 30
Jan-14
Dec-14
Source: Datastream
Apart from the ECB, the good payment discipline in the
Netherlands is also responsible for the falling spreads.
According to Moody’s, the percentage of NHG-guaranteed
mortgagors with payment arrears of more than ninety days has
decreased from 0.75% in June to 0.72% in September. The
credit ratings agency puts the cumulative losses at only 0.11%,
which is low compared to other countries. The reasons are the
internationally low unemployment and the solid social security
net.
The lower funding costs for banks translate into reduced
mortgage rates. According to DNB, the average interest rate
on a ten-year fixed-rate mortgage has fallen in the course of
the year by 80 basis points to less than 4%, while the average
interest rate on loans with a fixed-rate period up to one year
has dropped about 30 basis points to 2.7%. The average rate
on new mortgage contracts is now 3.3%, 40 basis points lower
than at the start of 2014.
What is the influence of temporary factors?
Temporary factors are playing a key role in the housing market
recovery. The ongoing price falls previously prompted many
households to postpone their home purchase. According to the
Netherlands Housing Survey ( WoON), there were almost 2.2
Due to the lack of data about the use of the temporary gift tax
exemption, it is hard to estimate how many transactions
actually resulted from this measure. An added difficulty is that
the gifts were partly used to repay debts or finance home
improvements. Nevertheless, information from real estate
agents and civil-law notaries suggests that until now gifts
played a role in some 15% of the transactions, as opposed to
10% of the transactions last year. The number of transactions
realised with an exempt gift was thus 11,000 higher than in
2013. It is not possible to say, however, whether the expanded
gift tax exemption was a decisive factor for these transactions.
The First-Time Buyer Loans are also making a temporary
contribution to the recovery of the housing market. With these
loans, first-time buyers pay no interest and make no
repayments during the first three years. In 2013 and 2014 an
estimated 13,000 first-time buyers made use of the scheme to
take out loans for an average amount of EUR 29.000. Just
over one in five users would probably not have purchased the
property without the First-Time Buyer Loan. The scheme thus
produced at least 2,600 sales. The actual number is higher,
however, because without the First-Time Buyer Loan seven in
ten users would have had to postpone their purchase.
The chances of the First-Time Buyer Loan Scheme generating
many more transactions in the coming years are slim, because
the funding pot is almost empty. In 2014 the government
raised its contribution to the scheme, making EUR 50m
available to stem the crisis in the housing market. As the
market is now picking up and the problems are concentrated
around moving homeowners rather than first-time buyers, the
government sees no need to top up the funding pot. Faced
with a lack of national funding, many municipalities are
Housing
Market Monitor - 22 December 2014
threatening to pull the plug on the First-Time Buyer Loan
Scheme.
Are there any other obstacles?
Alongside the aforementioned temporary factors, the housing
market also has other obstacles to overcome: the tax relief for
the highest marginal rate will decrease as planned to 51%; the
NHG limit will be reduced further in July by EUR 20,000 to
EUR 245,000; and, in line with the higher rents, the imputed
rental income for owner-occupied properties between EUR
75,000 and EUR 1,040,000 will be raised from 0.7% to 0.75%.
In addition, according to the Homeowners’ Association (VEH)
the additional housing costs are set to rise by almost 2% to an
average of EUR 712 due to the higher property tax rate and
sewage and waste collection levies. Finally, the Minister for
Housing and the Central Government Sector, Stef Blok, is
going to oblige homeowners to make a minimum contribution
to their homeowners’ association in order to prevent
maintenance backlogs and dereliction.
One safeguard in this connection is the statutory Loan to
Income (LTI) ratio. Minister Stef Blok sets the maximum
amount that people with a certain income are allowed to
borrow. This is done on the basis of advice from the National
Institute for Family Finance Information (Nibud). Previously,
the Nibud’s mortgage criteria only served as a guideline for
banks. Now, however, banks are required to strictly observe
these criteria.
The stringent nature of the mortgage criteria explains the
strong reaction to the Nibud’s most recent housing costs-toincome ratio tables for 2015. Nibud includes in its calculations
the prospect of children, the possible need for informal care
and inevitable expenditures in the event of sickness or
disability. Due to this more prudent calculation method, less
money is left over for housing costs. As a consequence,
families are allowed to borrow a lower proportion of their
income for their mortgage.
Mortgage loan limit is reduced further
The cost increases resulting from these changes are too
modest to stand in the way of the recovery. A bigger threat is
posed by the more stringent credit conditions. The banks are
less reluctant to extend mortgages and are no longer
tightening their acceptance criteria. Against this, however, the
maximum Loan to Income ratio that they must observe when
extending mortgages is lower than before.
Maximum mortgage in EUR based on notional interest rate
260000
240000
220000
Added to this, the maximum Loan to Value (LTV) ratio will be
reduced annually by 1 percentage point from 103% in 2015 to
100% in 2018. What will happen thereafter is unclear. The
CPB Netherlands Bureau for Economic Policy Analysis and
DNB are working on recommendations for the Financial
Stability Committee. This committee, comprising
representatives of DNB, the Netherlands Authority for the
Financial Markets (AFM) and the Ministry of Finance, must
weigh up the pros and cons of a further reduction. The main
advantages of a low LTV are less volatile house prices, a lower
risk of negative equity when prices fall, less indebtedness and,
hence, a more stable financial sector.
In the short term, however, an LTV reduction also has
disadvantages. For one thing, a lower LTV puts prices under
pressure, which makes the negative equity problem even
harder to solve. It also forces first-time buyers to save a
substantial sum first before buying their first property. And
saving is not easy for young households, given the high group
pension contributions that they must pay and the absence of
an affordable middle segment in the rental market to
accommodate this group. A further reduction of the LTV would
therefore hardly seem expedient.
Moreover, a reduction of the LTV is also less urgent if the risk
of payment problems is small. This is the case when
households have sufficient income to meet their obligations.
200000
07
08
09
10
11
12
13
14
15
With income of EUR 50.000
Source: Nibud
The size of the maximum mortgage can vary strongly. The
calculation depends on a variety of factors, such as the
number of income-earning partners and the energy efficiency
rating of the home. Another important factor is the fixed-rate
period of the mortgage. If the fixed-rate period is longer than
ten years, banks are allowed to base their mortgage
calculation on the market interest rate. If shorter, they must
use the higher notional interest rate. In short, it is impossible to
say what the exact implications of the adjustments will be.
In order to get some idea of the implications, we have
calculated the size of the reduction of the maximum mortgage
for the various income groups. Our calculations assume singleincome households and are based on the notional interest rate
(as most contracts have a fixed-rate period shorter than ten
years). Our calculations indicate a sharp fall in the maximum
mortgage for all income groups. The biggest drop – more than
30%! – concerns households with an income up to EUR
20,000. This group cannot even raise a loan of EUR 50,000,
which effectively excludes them from the property market.
Housing
Market Monitor - 22 December 2014
However, the number of home buyers in this group is already
low, so the impact on the owner-occupied segment will remain
limited.
The mortgage borrowing power of higher incomes above EUR
60,000 will also be significantly constrained. The maximum
mortgage that higher incomes are allowed to take out will fall
by 5% on average. However, as high-income households
typically borrow less than they are allowed to, the maximum
mortgage limit is less relevant for this group. The same does
not apply to the middle income group between EUR 30,000
and EUR 50,000. These households do tend to borrow the
maximum amount. As this is also the largest group, the
maximum mortgage limit for this group provides an important
measure for the development of the entire market. The
downward adjustment for this group, though low compared to
the other income groups, is still 2%.
Whether the consequences of the adjustments will be as
drastic as the adjustments themselves remains to be seen. For
instance, more households may now opt for a longer fixed-rate
period. In this case, the bank can use the housing cost-toincome ratio based on the actual interest rate rather than on
the notional interest rate when determining the maximum
mortgage amount. In some cases, this can create room for a
slightly higher maximum mortgage amount. The ultimate effect
of the adjustment, therefore, is very uncertain.
What does this mean for the outlook?
We are convinced that the much more stringent credit criteria
will temper prices. A recent DNB study shows that the credit
conditions have a major impact on house prices. This study
attributes no less than half of the price decline over the 20092012 period to tighter credit conditions.2 The development of
the credit conditions therefore constitutes an important
parameter for the way prices will move.
The substantial lowering of the LTI criteria therefore compels
us to revise our price forecasts. Our original price forecast for
2015 was an increase of 2%, but we have now reduced this to
1%. Compared with the decrease in the maximum permitted
mortgage based on the notional interest rate, this adjustment is
actually quite moderate. The modest effect is related to the
expected economic revival – because if the labour market
improves, disposable incomes will also rise. Further factors are
the sharply reduced mortgage rates and the growing
confidence in the housing market.
We are also reducing our forecasts for the number of
transactions. After previously forecasting 5% more
transactions in 2015, we now expect a stabilisation. This, in
itself, is not a bad result, given that the market is no longer
being fuelled by the first-time buyer loan scheme and the
2
Francke, M. (2014) The effect of credit conditions on the Dutch housing market, DNB
expanded gift tax exemption. At best, there may be some
additional second-step purchases following the earlier
transactions facilitated by these schemes. The number of
transactions, too, will be driven by the economic revival, the
low interest rates and the renewed confidence.
The housing market will manage to consolidate the gains from
2014 in 2015, before returning to more normal conditions in
2016. Once the effects of the tighter mortgage criteria have
become clear and the economy has settled into a firmer growth
path, property prices and transaction volumes will make further
advances. Our provisional estimate is a 2% price increase and
a 10% rise in the number of transactions.
On balance, prices are still developing at a moderate pace,
which means that the negative equity problem will not be
solved for the time being. The gift tax exemption provides
some respite, but will have less effect in 2015 than in 2014,
because the government is revoking the temporary expansion
of the scheme. One alternative could be to allow homeowners
to dip into their pension savings to make extra mortgage
repayments. The government is expected to publish the results
of an exploratory study into this option towards the end of
January. The initial indications are that this adjustment will be
difficult to implement.
Transaction volume and price estimates
Transactions (% y-o-y)
Prices (% y-o-y)
2014
30
1
2015
0
1
2016
10
2
Sources: Group Economics
Housing
Market Monitor - 22 December 2014
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