MPs: Bad idea to cut mortgage max. to 90 pct. of home price

An empty farmhouse for sale in The Netherlands. Source: Wikimedia/HardscarfAn empty farmhouse for sale in The Netherlands. Source: Wikimedia/Hardscarf

The new financial advisory board (FSC) of the government believe that maximum mortgage in the country should not exceed 90 of the house price. They say it would help prevent people getting stuck with residual debt. 

The Central Planning Bureau came to a different conclusion. They believe that a lower limit on borrowing results in lower housing prices, fewer home sales and a shortage of rental housing.

FSC argue that a lower borrowing limit should help avoiding the situation when homeowners run into a serious residual debt. FSC president and the head of the Dutch Central Bank (DNB) Klaas Knot believes that underwater mortgages contributed strongly to the relatively poor performance of the Netherlands during the crisis.

Reduction of the maximum loan value currently seems unlikely. Ruling party VVD declared its opposition to the proposal. They believe that the currently existing regulation sufficiently addresses the residual debt problem. Construction agencies and Dutch banks also oppose the idea expecting a decline in demand for mortgages and housing.

The board propose decreasing the maximum amount of 103 percent of the home price by one percent every year through 2028.


Another coalition party, PvdA, also spoke against the idea. "Under the new mortgage rules, buyers are already required to repay the amount in 30 years," one MP said. "It offers more than sufficient security for both lenders and buyers." Stricter standards are also bad for construction, he added.

D66 MP Wouter Koolmees criticized the regulation. "There has already been considerable intervention in the housing market. The idea is especially bad for families with young children," said the MP

DNB calculated that if the limit is reduced to 90 percent after 2018, the housing sales will drop by 20 percent. The old level of sales will only restore ten years after the implementation of the limit. Under the new limit, households would on average have to start saving three years before the house purchase.

Because individuals would be in search of alternative accommodation, the demand for rental housing would rise sharply, predicts DNB. This would result in increased rental prices and a shortage of available rental property. FSC argue that it would encourage extra housing construction. DNB also mention that decreasing purchasing power would result in a drop of house prices. They predict that prices would then drop by six percent until 2028.