The Dutch housing market attracts both domestic and foreign investors. The growing demand for rentals in the market is resulting in low income and capital gains tax, low mortgage rates and well-developed tenant and landlord rights.
However, the growing demand for rentals isn’t the only aspect that generates lower interest rates on mortgages. Foreign banks and fintech players moving in the Netherlands seem to also influence the accessibility and profitability of this type of banking products. For instance, the German banks that entered the market several years ago were offering interest rates 1% below the rates offered by local banks. Alternative banking institutions are also on the rise in the Dutch market. After the 2008 financial crisis, the housing market has shown stabilization tendencies, starting with 2013. This led to a growing demand for mortgage funding, a demand that local banks were unable to fill.
An attractive Lending Market
Like in all European countries, the major national banks have had a monopoly over the lending market. However, the financial crisis was to change the game. After the first stabilization signs of the real estate market appeared in 2013, the national house prices rose by 15% from their lowest point during the financial crisis.
The context generated a major gap in the lending market, banks becoming reluctant to take on mortgage exposure. Funding and regulatory constraints also contributed to this phenomenon.
Recently, non-bankers forcefully entered the market, Dutch insurance companies and pension funds making their slow entrance in the market. In 2016, a third of the annual mortgage value was covered by non-banking institutions.
For investors in different sectors, the Dutch mortgage segment has become increasingly attractive as asset allocation. The Dutch mortgage segment has shown resilience, historically and the attractive comparative returns also contribute to deeper penetration of non-banking players in the market.
The political and economic stability and resilience of the Netherlands make the mortgage market inviting to potential investors and fintech players. The Dutch environment is a highly convenient one for financial enterprises of all kinds. The residential mortgage sector ticks all the possible boxes when it comes to profitability and stability. The evolving regulations like the Solvency 2 and the constant encouragement for investors to explore market opportunities without conventional securitisations, is attracting flocks of investors in the area.
A Strong Welfare System Allows Dutch Borrowers to Meet their Mortgage Obligations
The Dutch welfare system and economic resilience are two important factors when it comes to the general appeal of the mortgage sector for investors. A stable country means fewer vulnerabilities for lenders but also borrowers. The welfare system is reinforced by a national affinity for individual benefits concerning illness and unemployment. The Netherlands has an intricate system where the deductibility of mortgage interest payments is covered from all taxable income one has.
In these circumstances, Dutch borrowers will always be able to meet their mortgage obligations, even during illness or unemployment. Traditionally, the Netherlands is having one of the strongest credit markets. On the flip side, the interest rates still remain high due to a reduced influx of foreign capital over the past few years. The funding gap left behind by the financial crisis is still to be met. But because of the fact that mortgage lenders in the Netherlands experience the lowest loss rates in Europe, things might soon change.
A Change in the Mortgage Investment Landscape
Lenders of all kinds have started to search for new investment opportunities across the European continent. Unsurprisingly, the Dutch market has become a strong environment, having all the necessary features to help both lenders and borrowers thrive.
Fintechs and other non-bank players selling loans to institutional investors accounted for more than 25 billion Euros in 2017. Dutch institutional investors thrive in this context and their market share is expected to grow even more in the following years. Online lenders are also growing in popularity. The Dutch consumer wants easy access when in terms of banking products.
Also, online loan comparison tools in the Netherlands allow the wide consumer to make better and informed decisions, given the variety and multitude of offers in the sector. Today, Dutch institutional investors offer competitive mortgage rates and in return, they now have access to an attractive and diverse asset class.
As of 2019, the total transaction value of alternative lending products amounts to $ 26.5 million, globally. In the Netherlands, non-traditional lenders grew in popularity, which forces traditional players to develop new, attractive banking products.
Over the past few years, Dutch homebuyers turned their attention to alternative lending in their mortgage funding attempts. Thousands of residents have accessed mortgages from institutional investors. Banks see themselves forced to relax their capital requirements that up until now have made long-term borrowing, stringent matter for homebuyers.
Changes in Borrower Behaviour
The Dutch Borrower also seems to experience a shift in behaviour. With numerous online platforms that allow easy comparison between different mortgages and lenders, they seem to turn their attention to less traditional methods to fund their homebuying process. Thousands of borrowers find help in pension funds. Some consumers borrow mortgages form untraditional lenders, with fixed rates of as low as 2.1%.
Smart competition makes the borrower see differently than before alternative funding. While previously borrowers were reluctantly looking at alternative solutions and they were seeing those as sketchy products, today, the enthusiasm with which they close on mortgages with new players is impressive.
Like in other paths parts of the world, new banking solutions and new lenders are due to change the mortgage and long-term loan climate. With a keen competition in the sector, we might witness a relaxation of the application requirement of traditional banks and players. The fintech sector is strongly developing and a series of new tools, especially loan comparison tools are due to offer borrowers a new perspective on different banking solutions and loans. Not being tied to a single solution increases competitiveness in all sectors, but the banking sector seems to experience a new age of change.