Housing market

Housing market cooling down

Due to rising mortgage rates and a slumping economic outlook, the housing market has been cooling since the summer of 2022. The prices of residential properties have declined somewhat compared to previous months. Houses are on the market for longer and buyers have a wider choice of properties as a result. Overbidding is happening less frequently and the amount overbid is also lower. A long period of steep price increases has now come to an end. The rise in prices was mainly driven by low interest rates combined with generous mortgage loan standards, which allowed people to borrow money cheaply. As a result, potential buyers were able to make higher bids, thereby driving up prices.

House prices fall, interest rates rise

Source: Statistics Netherlands, DNB

First-time buyers are still struggling to find a home

In the Netherlands, there are not enough houses for everyone. And housing is expensive for many people looking for a property such as first-time buyers, low- and middle-income earners and single people. Housing costs are particularly high in the Randstad region. We expect housing costs to remain high, even though the steep price increases have come to an end. This is because house prices have a lagged response to interest rate increases. If you take out a mortgage now, however, these higher interest rates mean your monthly payments will also be higher. This has a negative impact on housing affordability in the short term. Moreover, households' budgets are tighter due to higher energy prices and inflation. As a result, it remains difficult for many first-time buyers to find a property. If house prices fall further, affordability may improve again down the road.

For most homeowners, monthly costs remain the same for now

Homeowners may face higher monthly costs when their fixed-interest period expires. About a quarter of outstanding interest-rate contracts will expire in the next five years. That means there is a very large group for whom the rise in interest rates is less of a problem for the time being. But there is also a group that will have to deal with higher monthly costs. Many households that have recently taken out a mortgage have opted for a long-term fixed-interest period (on average 15 years or more). This means they are generally not very vulnerable to interest rate hikes, with the exception of some individual cases.

Fewer houses under water

For homeowners, a fall in house prices is bad news. If prices continue to fall, the value of a house may at some point become lower than the mortgage debt. The house is then “under water”. This is a problem when you want to sell your house: the proceeds from the sale will not be enough to pay off the mortgage and you will be left with a residual debt. A fall in house prices is always a risk for homeowners. At the lowest point of the 2013 housing market crisis, 3 in 10 homes were under water. If prices fell 20% now, 1 in 12 homeowners would be left with residual debt when selling their home. In many cases, these are first-time buyers who have borrowed heavily to buy their homes. Having a home that is under water is not only problematic for homeowners, but also bad for the economy. This is because if your home is under water, you will have less money to spend and that slows down the economy.

Solutions for the housing market

We have made a number of proposals to solve the problems in the Dutch housing market, and we list the most important ones below.

More new homes

Many new homes will have to be built in the years to come and the central government should play a coordinating role in the process. In particular, more affordable rented housing in the non-subsidised sector is needed. This will offer an alternative to those entering the housing market and not yet able to buy, giving them the opportunity to save toward the purchase of a home in due course without having to take on huge debts.

Phase out tax benefits for homeowners

There is a difference between buyers and renters. People who own their home often have lower housing costs than people who rent in the private sector due to tax benefits. We advise the government to further phase out financial benefits for homeowners. For example, by moving home equity from Box 1 to Box 3 for income tax purposes. The government could then use the resulting revenues to lower income tax, for example. Of course, these tax benefits should be phased out gradually, so homeowners do not suddenly face higher costs.

Lower the maximum mortgage

In the Netherlands, we have high mortgage debts compared to other countries. The government makes it financially attractive to borrow money to buy a house. In the Netherlands, you can take out a mortgage up to 100% of the home's value. This means that many Dutch households have high mortgage debt, which makes them financially vulnerable. Indeed, if house prices fall sharply, homes may go under water. High mortgage debt also leads to high volatility in our economy. We recommend gradually reducing the maximum mortgage from 100% to 90% of the house price.

No more measures that increase spending margin

The government has recently taken several measures that allow first-time buyers in particular to make higher bids. Examples include the more widely available special loans for first-time buyers and the abolition of transfer tax for this group. These measures are well-intentioned, but they actually lead to even higher house prices in the longer term. If you have more money to spend on a house, you can pay a higher price. And if more people do so, housing prices will rise further.