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.
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