Growth of mortgage lending by banks positive for the first time in three years

Statistical news
Datum 9 mei 2017

In December 2016, year-on-year growth of mortgage lending by Dutch banks was positive again for the first time in three years. Edging up to 0.3% in February 2017 but dropping back to 0.2% in March, growth is still far from its pre-crisis levels, when figures exceeding 5% were common.

Year-on-year growth reached its low in March 2014, when it dropped by 1.4%. It took nearly two years before the growth level was positive again. In the period from November 2016 to January 2017, month-on-month growth was still negative, however. This is not uncommon around the turn of the year, when households for instance use their savings to make voluntary repayments on their mortgage loans.

The recovery of the housing market is one of the main drivers of recent growth in mortgage lending. The number of housing transactions increased to 204,000 in 2016 from 109,000 in 2013, which means it is back to its pre-crisis level. Lower mortgage interest rates have also boosted mortgage demand. In February 2017, the mortgage interest rate at banks averaged 2.39%, representing a decrease of 28 basis points compared to the same period a year before. In March 2014, for example, the average mortgage interest rate stood at 3.52%.  

Despite a clear recovery of the housing market since 2013, the growth of mortgage lending by banks remains relatively limited. The main reasons for this limited growth include repayments on existing mortgages as a result of low interest rates on savings and the gift tax regulations for home purchases and mortgage repayments. Similar to the 2013 and 2014 regulations, the gift tax regulations have been relaxed in 2017, enabling one-off tax-free gifts for home purchases and mortgage repayments of up to EUR 100,000. Lagging newbuild rates, decreased mortgage equity and the relatively large share of older homeowners also contribute to the more moderated increase of debt levels. Further tightening of loan conditions adds further pressure on mortgage lending. For example, the Dutch loan-to-value (LTV) limit was lowered to 101% from 102%. The LTV limit indicates the maximum mortgage loan relative to the value of the home. A lower LTV limit will make the housing market more resilient to shocks.  

Last but not least, competition from non-bank mortgage lending providers including insurance companies and investment funds, is also increasing. End-2016, these parties held mortgages worth 131 billion on their balance sheets. Compared to end-2015, this represents a 10% increase. Total mortgage lending growth in 2016 adds up to 2%, compared to 0% for mortgage lending growth by banks only. With a market share of 87% at end-2016 and outstanding mortgage debt of around EUR 520 billion in March 2017, banks continue to play a major role in the mortgage loan market.