1 November 2017
Dutch housing market attracts both domestic and international investors by its growing demand for rental housing resulting in gross rental yield, low income and capital gains tax, low mortgage rates, well protected landlord and tenant rights, and secure investment environment. The Dutch government has taken several measures to promote housing financing through mortgages, for example introducing of tax deduction on mortgage interest payments, providing NHG-backed mortgages, supporting a network of independent mortgage advisers.
Mortgage loans are an important debt instrument financing purposes (for example, purchase of a new or existing property, construction of an own property, property renovation) without paying the entire value up front. Mortgage loans come in different types, lenders offer a wide spectrum of mortgage products, varying in interest rate types, repayment type and loan-to-value ratios.
Interest rate is an essential characteristic of a mortgage loan and in a broad sense can be either fixed or variable. A fixed rate interest rate remains constant during the whole mortgage term. A variable (or adjustable) rate is fixed by the lender for an agreed period of time after which the rate is adjusted according to a certain agreed index (underlying index). Both market indices (for example, Euribor or LIBOR) and proprietary lender indices can be used as underlying indices. Dutch banks offer both fixed and variable rate mortgages.
Mortgage term is a period after which the mortgage loan is repaid. Dutch banks offer mortgages from 1 to 30 years terms.
Mortgage repayment type defines how exactly the mortgage interest and principal amount are repaid.
Loan to value (LTV) ratio is defined as the ratio of the size of the loan to the value of the property and an important indicator of a mortgage loan's risk: the higher LTV, the higher is the risk the property's value will get insufficient to cover the remaining principal of the loan.
Interest paid on mortgage loans for the main residence is fully deductible from pre-tax income for a maximum period of thirty years. Tax deductibility thus offers firm income support for homeowners. The tax deductibility of mortgage interest has greatly influenced the Dutch mortgage market. In particular it encouraged interest only mortgages.
The National Mortgage Guarantee (dutch: Nationale Hypotheek Garantie, abbreviated as NHG) is a Dutch foundation established to promote a sustainable favorable climate for homeownership in the Netherlands as well as to promote financing of own housing in the financial markets. In particular, NHG contributes to the Dutch mortgage market by providing so-called 'NHG-backed mortgages': a mortgage borrower can buy a guarantee provided by a government-backed foundation, the Homeownership Guarantee Fund (dutch: Waarborgfonds Eigen Woningen or WEW) covering specific circumstances when the borrower can't pay the mortgage (for example, losing his/her job, getting divorsed, getting disabled). Over 50% of Dutch mortgages are issued with NHG-guarantee. NHG-backed mortgages reduce borrowers' credit risk, and hence are offered at lower interest rates compared to the same mortgage products without the guarantee.
NHG sets up and periodically reviews eligibility criteria and conditions on providing its guarantees, including:
Current criteria and conditions set by NHG are summarized in the table below.
Mortgage advisors provide financial advice on mortgages helping prospective borrowers to find a financial solution, best suited to their needs and guiding them through mortgage application process.
In the Netherlands mortgage advisors must comply with the Financial Supervision Act (Wft) and require a license issued by the Dutch Authority for Financial Markets (AFM). If a customer is not satisfied with the provided advice, he/she can raise a complain to the Complaints Institute for Financial Services (Kifid).
Dutch banks usually offer a free orientation meeting or call, then charging customers for subsequent meetings.
Repayment of a mortgage is making regular payments covering the mortgage costs. Several variations exist on what part of mortgage (interest or principal amount) is included into each of the payments. It should be noted that according to the Dutch regulations, interest payments are deduced from the borrower's taxable income.
During the mortgage term only interest payments are made, the principal amount is repaid at the end of the mortgage term. This means that the regular payments are lower compared to the other types of repayment mortgages.
Interest-only mortgage is also called redemption-free mortgage.
Interest-only lifetime mortgage is similar to interest-only mortgage: the regular payments covering the mortgage's interest are made. However, unlike interest-only mortgage, interest-only lifetime mortgage does not have a fixed term, rather it lasts for the rest of the borrower's lifetime.
During the mortgage term regular payments are made towards both interest and principal amount. The amount of these periodic payments remains the same during the mortgage term and is calculated using time value of money concept.
Annuity mortgage is also called level-payment mortgage. At the beginning the interest repayments are high, while the principal repayments are low; during the mortgage term the interest repayments are getting lower, while the principal repayments are getting higher.
During the mortgage term regular payments are made towards both interest and principal amount. The amount of these payment gradually decreases over the mortgage term, because the fixed principal amount is repaid with these regular payments making the interest payment lower over time.
Savings mortgage (dutch: Bankspaarhypotheek) is a combination of interest-only mortgage and a savings account: the interest is repaid during the mortgage term, while the principal mortgage amount is repaid at the end of the term with the savings made at a savings account.
Several mortgage loans offered by Dutch banks are described in details below. The following characteristics of the mortgage loans are provided:
ING Bank is a member of ING Group, a financial company specializing in insurance and banking. ING Bank is a universal bank offering a wide range of products and services to individuals, families, small businesses, large corporations, financial institutions, governments, public and private institutions and supranational bodies. ING Bank is a market leader in "Benelux" countries (the Netherlands, Belgium and Luxembourg) where it currently has strong market positions in retail and commercial banking.
ABN AMRO Bank serves retail, private and corporate banking clients with a primary focus on the Netherlands. ABN AMRO Bank is one of the largest banks of the Netherlands. The bank also conducts selected operations internationally. ABN AMRO Bank offers a comprehensive range of products and services via multichannel distribution including mobile applications and internet banking. In particular, MoneYou is a subsidiary of ABN AMRO Bank, specialising in online financial services (savings, mortgages and consumer loans) for retail clients and also offering savings products outside the Netherlands (Germany, Belgium and Austria). ABN AMRO Bank N.V. is the head bank of ABN AMRO Group (Netherlands).
AEGON Bank N.V. is a subsidiary of AEDON N.V., a Dutch company specializing in life insurance, pension and asset management products. AEGON Bank N.V. provides retail banking products, mainly deposit accounts and mortgage loans.
Nationale-Nederlanden Bank NV is a member of NN Group, an insurance and asset management company. Nationale-Nederlanden Bank provides retail banking products and services including savings, investments, payment cards mortgages and consumer loans. Nationale-Nederlanden Bank offers its products both directly and indirectly via independent consultants.
ASR Bank N.V. is a 100%-owned subsidiary of a Dutch insurance company ASR. ASR Bank is focused on providing mortgage loans and savings and investment products to the Dutch retail market. These products are sold via intermediaries and via the bank's website.
Founded in 1945 to finance entrepreneurs, NIBC Bank is a Dutch bank operating in "BeNeLux" countries and in Germany. The bank provides banking products to corporate and individual clients. NIBC Bank is focused on corporate customers from specific sectors such as the food industry, agriculture and retail, manufacturing, technology, media and services, commercial real estate, shipping, oil & gas services, infrastructure and renewable energy. Business activities for individuals are dominated by residential mortgages and savings products. The savings products are offered via its subsidiary NIBC Direct.
The table below summarizes the similarities and differences (changes in gross and net payments, tax deductions, interest repayments and mortgage debt) between the main mortgage repayment types (interest-only, annuity, linear).