Impact on the mortgage market
Maximum mortgage loans for households are based on the standards issued by the National Institute for Family Finance Information (Nibud). The Institute has been calculating maximum mortgage loans at a given income and mortgage interest rate since 2000.In the period 2000-2007, the standards only applied to mortgages under the National Mortgage Guarantee (Nationale Hypotheek Garantie – NHG), but from 2007 onwards they have also been applied to non-NHG mortgages. In 2013, the standards were laid down in a ministerial regulation.
The Nibud standards are not the only mortgage lending market standards that have been tightened following the crisis. For example, the government also restricted mortgage interest tax relief options to annuity mortgages and capped the loan-to-value (LTV) rate for mortgages. The tightening of the Nibud standards is the only measure affecting the maximum mortgage loan, however.
Since Nibud traditionally bases its calculations on a fully annuity-based mortgage, the amendment to mortgage interest tax relief options has had no effect on the calculation of the maximum mortgage loan. Capping the LTV rate does not affect the maximum mortgage loan either, as the more expensive the home, the higher the amount that can be borrowed. This merely implies that households must finance part of the home with their own funds.
Additional buffer for essential expenses
Nibud calculates the maximum room for housing expenses as a residual item. First, the Institute calculates a reasonable multi-year minimum level of expenses other than housing for each gross income group. The part of net income that remains, can be used for housing. The Nibud standards thus move with tax burden fluctuations. Tax burden decreases lead to more net income while expenses remain the same, which means the share of income available for housing expenses will be greater. Tax burden increases on the other hand reduce the share of income available for housing.
In recent years, the Nibud standards have in effect only been tightened for the lowest income groups by the addition of an extra buffer for essential personal expenses. Most households experienced a tightening of the standards mainly as a result of the tax measures imposed by the government to balance its budget. In addition, essential expenses other than housing increased over the past years due to inflation, even though only moderately most of the time.
The figure shows the index-linked development of maximum mortgages according to Nibud standards for a household with an income of EUR 50,000 in 2008. The pattern is the same for higher and lower incomes. The blue line represents the maximum mortgage loan at a fixed income and fixed interest rate and demonstrates the effect of tax increases and inflation on maximum mortgages.
Higher wages, lower interest rates
This is not the whole story, however, as interest rates went down and incomes rose in the same period. These factors also affect maximum mortgage loan levels.
Chart 1 - Development of the maximum mortgage loan level at a gross income of EUR 50,000 in 2008
Index 2008 = 100