The Dutch Cabinet's policy is to reduce the LTV limit by one percentage point each year, from 103% now to 100% in 2018, and, in line with the recommendations of the IMF and the Wijffels Commission, it has announced that further reductions after 2018 are desirable. On this occasion and at the request of the Financial Stability Committee, DNB has undertaken a study into the effects that a gradual reduction of the LTV limit to 90% would have on financial stability and the macroeconomy. It published the results in the report entitled “Effects of further reductions in the LTV limit".
First-time buyers will be less vulnerable
A lower LTV limit makes first-time home buyers, in particular, more resilient financially. In 2013, two-thirds of those who had bought their first home since 2004 had an underwater mortgage loan. If mortgage loan structures had been annuity-based and the LTV limit had been 100% in 2004, almost half of those first-time buyers would have been underwater in 2013. This would have been 13% at an LTV limit of 90% and none at 80% (see Chart 1).
Chart 1 - Proportion of first-time buyers with underwater mortgage loans in 2013 at different LTV limits