Housing market crash a major risk says Dutch Central Bank

Dutch central bank DNB currently considers the situation on the Dutch housing market the biggest threat to financial stability in the Netherlands, according to the DNB's six-monthly Overview of Financial Stability. The "systemic risk in the housing market" increased significantly in the past years and a sudden fall in house prices could be disastrous for households and banks, the regulator said, RTL Nieuws reports.

DNB therefore wants banks to apply a minimum limit for estimating the risks associated with their mortgage portfolio. The higher the loan amount compared to the value of the house, the more money a bank must keep in reserve. According to the regulator, this means that Dutch banks together need a total of 3 billion euros in extra buffers. This requirement takes effect in the fall of next year.

House prices in the Netherlands increased sharply over the past years, partly due to falling interest rates and a smaller and smaller supply. That in itself is not a major issue, but as incomes have risen less rapidly, the ratio between what people earn and what they pay for their house is now even larger than during the previous peak in the housing market. In addition, homebuyers are going even further to buy a house, by overbidding and borrowing more. In 2013, the previous peak in the housing market, 44 percent of first time homeowners borrowed the maximum to buy a house. In the second quarter of this year, it was nearly half.

At the end of March this year, Dutch households had an outstanding mortgage debt of 527 billion euros with Dutch banks. That is equal to 91 percent of the total Dutch economy, according to DNB. In other euro countries the average mortgage debt is 55 percent of the GDP. 23 percent of all loans at Dutch banks are outstanding mortgages.