The year 2022 was marked by rising inflation, monetary tightening, an energy crisis and the start of a full-scale war in Ukraine, having a significant impact on the economy as well as the housing market.

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Steep increase in mortgage rates, decreasing house prices and low consumer confidence

One of the major factors that affected the mortgage market was the steep increase in mortgage rates (the lowest 10-year NHG mortgage rates were at 0.92% at the start of the year, but peaked at 4.38% in October and ended the year at 3.93%), resulting in refinancing activity as borrowers could benefit from lower interest rates.

Another impact of the higher interest rates was a shift in borrower demand towards shorter fixed rate periods (in 2021-Q4, the market share new mortgages with a fixed rate period between floating and 10-year fixed mortgages was 37%, but increased to 69% in 2022-Q4).

As house prices were adjusting to the new interest rate environment they started to decrease, and affordability came under pressure due to increasing rates. All the above resulted in a substantial decline of consumer confidence towards the housing market, the largest quarterly decrease since 2004.

Spreads widened as swap rates remained relatively stable and mortgage rates were catching up

As mortgage rates generally lag swap rate developments, spreads widened by an average of 23 bps across all risk classes and fixed rate periods in 2022-Q4 because swap rates remained relatively stable and mortgage rates were catching up. With respect to YoY changes a slight average increase of 5 bps is observed.

Spreads decreased by an average of 8 bps for the fixed rate period of five years, longer fixed rate periods increased by an average of 9 bps. However, QtD spreads expanded by an additional 35 bps across all risk classes and fixed rate periods as swap rates declined. In the buy-to-let market both mortgage rates and spreads expanded substantially.

Forecast 2023 predicts a strong credit performance of the housing market

As we look forward to 2023, we can expect to see a decrease in new home construction and house prices, as well as a slowdown in total mortgage volumes. However, with generous support measures from the government, an extremely tight labor market and a partial recovery of purchasing power, the credit performance of the housing market is expected to remain strong.

Rules and regulations in the buy-to-let market

In 2022 and 2023 the Dutch government has intensified its efforts to regulate the private rental sector and individual private landlords will be taxed much more heavily than before. As of now it remains unclear what the revision of taxes will look like from 2025 onwards, but in the meantime more rent regulation on new contracts and more taxation on existing properties will probably lead to a smaller middle rental sector in larger cities.

Climate risk reporting: an insight on risks for Dutch mortgages

The assessment of climate risks in portfolios is becoming more important as scientists increasingly warn about the physical consequences of climate change. The potential disruption and financial implications, as well as regulatory and external pressure, are moving financial institutions to incorporate climate risks into their financial decision-making.

Read the full report to learn about some of the climate risks that are applicable to a Dutch mortgage portfolio, and an analysis giving insight into climate risk exposures of the Dutch housing stock performed by Dynamic Credit.

Disclaimer Dynamic Credit Partners Europe B.V. (‘Dynamic Credit’) is a registered investment company (beleggingsondernemingsvergunning) and a registered financial service provider (financiëel dienstverlener) with the Dutch Authority for the Financial Markets (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.