Foreign banks entering the Dutch mortgage market
Several weeks ago Dutch newspapers were full of stories about a consortium of 10 German banks planning to move into the Dutch mortgage market.
These German banks were going to offer mortgage interest rates of 1 percent below that offered by Dutch banks. There was even talk of available capital totalling 500 million euros.
The story turned out to be a storm in a teacup. It came from a self-employed mortgage broker and when the Financieele Dagblad checked the facts with two of the so-called consortium members (Deutsche Bank and Allianz), neither had plans to move into the Dutch mortgage market.
Muscling into the market
Nevertheless, there is nothing new in the idea of foreign banks muscling into the Dutch market. Banks from Belgium (Argenta), the United States (GMAC and GE) and France (Paribas) have extended mortgages in the Netherlands for years.
A number of new ones are also joining in. For example, German bank Volksbank Emmerich-Rees is trying its luck in the Netherlands, while Sweden’s Svenskabank has also set up shop.
At the moment, the products offered by these new players cover a low percentage of the value of the property, but it is only a matter of time before they begin offering 100 percent mortgages.
German mortgage providers tend to be more cautious than Dutch ones. A German bank will only finance a maximum of 70 percent of the value of the property.
German banks also require more information about the property than Dutch ones, such as the condition of the property, any local zoning laws and the financial situation of the owners’ association (VvE).
Until 2011, people in the Netherlands could borrow 112 percent of the value of their property, but that has now been reduced to 105 percent. The percentage is being lowered by 1 percent a year and by 2018, the maximum loan will be 100 percent.
Interest rates in the Netherlands
The Netherlands is one of the few countries in the world where the interest paid on mortgages can be deducted from tax. House prices in the Netherlands are also among the most expensive in Europe, having gone up 250 percent between 1995 and 2008.
Interest rates are currently at an historic low. The European Central Bank’s (ECB)refinancing rate is 0,5 percent, the US Federal Bank’s (FED) is 0,25 percent and the Euribor is upwards of 0,12 percent.
The ECB says it has more than enough money at the lowest rate ever - 0,5 percent - so that European banks can continue to borrow easily and cheaply
The interest rates in the Netherlands are around one percentage point higher than in surrounding countries. This is partly due to the lack of competition in the Dutch mortgage market. There are few foreign providers and of the big four banks only Rabobank has not had any state support.
The ECB is striving to ensure price stability in the eurozone and the Dutch mortgage tax relief system continues to be a major irritant.
› Reluctant banks & Eager expats
Banks are reluctant to lend money and are less likely to extend new mortgages. At the same time, there is little enthusiasm among young people to buy a house. Expats, however, are continuing to buy.
› NHG & Spending limit
The national mortgage guarantee reduced from 320.000 euros to 290.000 euros from July 1. This means people will not be able to spend more than 276.190 euros on their house if they want to be covered by the Nationale Hypotheek Guarantie (NHG).
› Dutch homes are heavily financed
Some 25 percent (500.000) of homes are worth less than the mortgage on the property. This is expected to go up to 40 percent, or 800.000 households.
The new reality
Looking at the future and current developments in the Dutch mortgage market, it is clear there is room for new arrivals.
It is only a question of time before German, French, Swiss and Austrian groups start offering mortgages in the Netherlands, particularly if these mortgages are covered by the NHG.
This means Dutch mortgage rates will fall and banks like Rabobank, ING and ABN Amro will have to adapt their prices to the new reality. All in all, this will be a positive development for house buyers in the Netherlands.