Dynamic Credit Dutch Housing Market Update Q4 2020Dynamic Credit Dutch Housing Market Update Q4 2020
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Dynamic Credit Dutch Housing Market Update Q4 2020

Jasper Koops - Head of Portfolio ManagementJasper Koops29 January 2021 at 15:00

The Dutch housing and mortgage market continues to show strong performance despite the COVID-19 pandemic, largely due to the extended support measures introduced by the Dutch government.

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While consumer confidence crawls back to pre-coronavirus levels, house prices are still on the rise due to a persisting shortage in the supply of houses. Meanwhile, we saw the effect of the new property transfer tax regime near the end of the quarter, with first-time house buyers postponing their purchase, whereas buy-to-let (BTL) investors frontloaded their investment.

No negative impact on housing market performance

Despite the introduction of the second lockdown in light of the more contagious COVID-19 strain, the Dutch housing market continued its strong performance. House prices increased by 2.0% over the quarter, with an increase in transactions of 7.4% since last quarter. The supply of houses has not been this tight in 20 years, with slightly less than 27.000 properties for sale. So far, credit performance remains strong as foreclose levels are minimal.

“Many speculated on a migration from big cities to smaller municipalities, with borrowers preferring more space for a home office and a garden. However, the opposite has happened”

Jasper Koops

No sign of predicted migration from big municipalities

Due to the ‘new normal’ of working from home, many speculated on a migration from big cities to smaller municipalities, with borrowers preferring more space for a home office and a garden. However, the opposite has happened. Even though there is outflow from the largest cities, the inflow from smaller municipalities within the Netherlands has increased as well, as they don’t have to compete with expats following a sharp decrease in immigration. This means that so far, the predicted outflow from the largest municipalities is not apparent.

Spreads and rates slightly down for both residential and BTL mortgages

Across all major risk classes and fixed rate periods, the top six most competitive rates fell on average by 9 basis points, causing residential mortgage spreads to decrease by 7 basis points. The changes among fixed rate periods varied, with 20- and 30-year fixed rates seeing the biggest decreases (11 bp) and 5-year fixed rates seeing the smallest decreases (3 bp).

A similar trend can be seen in the BTL market, with rates and spreads dropping across all major risk classes and fixed rate periods.

Effect of property transfer tax regime on housing market

As of January 1st, 2021, the first-time property transfer tax rate has been reduced to 0% for home buyers up to the age of 35. At the same time, the tax rate for non-primary-residence buyers, such as investors, has been raised to 8%. A drop in the transactions of apartments of buyers up to the age of 35 has was visible in November and December, largely due to those buyers postponing the transfer date to 2021 to benefit from the tax exemption. Meanwhile, a steep increase in the number of transferred properties towards the end of the year was spotted, with the month of December seeing a 109% increase compared to the same month a year earlier. This increase is mainly driven by buyers above 35 frontloading their BTL-investment in 2020 to prevent paying the increased transfer tax.

Disclaimer Dynamic Credit Partners Europe B.V. (‘Dynamic Credit’) is a registered investment company (beleggingsondernemingsvergunning) and a registered financial service provider (financieel dienstverlener) with the Dutch Financial Markets Authority (Stichting Autoriteit Financiële Markten). This presentation is intended for informational purposes only and is subject to change without any notice.The information provided is purely of an indicative nature and is not intended as an offer, investment advice, solicitation or recommendation for the purchase or sale of any security or financial instrument. Dynamic Credit may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented herein. Dynamic Credit cannot be held liable for the content of this presentation or any decision made by a third party on the basis of this presentation. Potential investors are advised to consult their independent investment and tax adviser before making an investment decision. An investment involves risks. The value of securities may fluctuate. Past returns are no guarantee for future returns.

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Jasper Koops - Head of Portfolio Management
Jasper Koops
Jasper Koops