For the third quarter in a row, an increasing number of banks are reporting a drop in demand for residential mortgage loans, as revealed in the latest Bank Lending Survey (BLS), a quarterly survey of a number of major Dutch banks. In particular, rising interest rates and expectations in the housing market, including price developments, are being cited by more and more banks as the main factors behind declining demand.
The average interest rate on new mortgage loans provided by banks has more than doubled since February 2022 (then 1.67%). Furthermore, the flattening of year-on-year growth in house prices since 2022 turned into a decline in the first quarter of 2023. An increasing number of banks are indicating that these interest rate and housing market developments are contributing to the drop in demand for new mortgage loans over the past three months.
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This is the first time since 2013 that multiple BLS surveys in a row have indicated that housing market developments appear to be dampening demand for residential mortgage loans. Potential homebuyers may postpone their purchase in anticipation of a further fall in prices and a stabilisation of mortgage interest rates.
Looking ahead to the second quarter of 2023, banks say they do not expect significant changes in mortgage loan demand.
The BLS is a quarterly survey in which a number of Dutch-based banks look back on credit developments in the past quarter and look ahead to the next quarter. The participating banks, comprising the major banks and selected specialised banks, together account for over 80% of the financial assets of the Dutch domestic banking sector. The banks’ responses only reflect the direction of developments and expectations, but not their exact extent.
Demand development is expressed as a net percentage indicating the difference between the percentage of banks that observe an increasing demand and the percentage that observe a decreasing demand. Changes in credit standards are expressed as a net percentage indicating the difference between the percentage of banks that have tightened credit standards and the percentage of banks that have eased them. For more information, see the explanation in table Trends in acceptance criteria and bank lending demand with Dutch-based MFIs. The reference date of the latest BLS survey is 1 April 2023.
Banks’ credit standards also play a role in mortgage lending. These are the internal guidelines that banks use in their lending practices, including, for example the conditions that households must meet to obtain a mortgage.
The BLS results show that slightly more banks now say they have tightened credit standards than in the previous quarter. The main reasons are the general economic outlook and the creditworthiness of households applying for mortgage loans.
The housing market outlook was mentioned less frequently in the most recent survey, on the other hand. Looking ahead to the second quarter of 2023, banks indicate that they do not expect to tighten or relax their credit standards significantly.
Table 5.5 Trends in acceptance criteria and bank lending demand with Dutch-based MFIs
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