Decline in interest rates across the board
The interest rates that banks in the Netherlands charge to their customers have fallen steadily in recent months: corporate and consumer loans have become cheaper, while the rate of interest paid on savings has been lowered too. This decrease partly reflects money and capital market developments.
Residential mortgages and corporate loans
The average interest rate on residential mortgages declined in the first five months of 2012. Households that took out a new mortgage loan in May, or renegotiated their existing mortgage, agreed with their bank on an interest rate of on average 4.33%, compared to almost 4.54% at the beginning of the year.
The decline was particularly pronounced for mortgages with a relatively short (up to five years) fixed-rate period (Chart 1). In May 2012 the interest rate on a mortgage with a relatively short fixed-rate period (up to one year) was around 1.30 percentage point less than that on a mortgage loan with a fixed-rate period of more than 10 years. At end-2011, this differential was 1.02 percentage point.
Dutch enterprises paid an average of 2.25% for their new financing in May 2012. Loans of more than EUR 1 million in particular became significantly cheaper: businesses paid just under 2% on those loans in that month, relative to 2.85% at end-2011. The average interest rate paid for corporate loans of less than EUR 1 million was 3.82%, against 4.43% a year earlier.
Not only lending interest rates declined, but also the interest paid on savings. In May 2012, households received an average interest payment of 2.35% on a regular savings account, 0.05 percentage points less than two months previously. This decline since March 2012 brings an end to an increase in the savings deposit rate that lasted more than eighteen months. The savings deposit rate grew particularly sharply in 2011. Households received 0.4 percentage points more interest on their savings at the end of that year than at the beginning. The sharp climb in this period can be partly attributed to the rise in financial market rates. In funding their lending, Dutch banks not only depend on household deposits but also on funding from the financial markets. If market funding becomes more expensive, banks usually intensify their competition for household savings. Increasing competition results in higher rates on savings deposits.
The interest rates paid on savings by the smaller banks and the four major banks (Rabo, ING, ABN Amro and SNS) have recently moved closer together (Chart 2). The difference now amounts to an average of less than five basis points to the advantage of savers at the smaller banks. The smaller banks paid interest rates on savings deposits in 2011 that were on average 15 basis points higher than the rates offered by the larger players in the savings market. However, in the recent decline, it was mainly the smaller banks that lowered their rates on savings quite swiftly.