Consumers are hoarding savings instead of repaying mortgages

Despite the partial lockdown in the spring and most holidays being canceled, people did not spend more on repaying their mortgages, but less. This was shown in a report by De Nederlandsche Bank (DNB) published by NU.nl. 

In total, about 3.5 billion euros went to repaying mortgages in April, May, and June, about 340 million euros less than in the second quarter of 2019. “Preliminary figures show that in the third quarter of 2020, the voluntary repayments were lower than in the same quarter a year earlier,” reports DNB. 

The money we didn’t spend on eating out and going on vacation mostly ended up in consumers’ bank accounts. “On savings and current accounts,” said DNB. This includes holiday pay which is usually credited in May or June. 

DNB finds it striking that, with extra money in their pocket, consumers did not choose to reduce their mortgage debt and thus to reduce their repayment period / monthly costs. “This is striking because voluntary repayments usually make up a substantial part of the additional savings.” 

And those additional savings were unprecedentedly high. These include all extra savings apart from pension accrual, which is usually not voluntary. The total of additional savings in the second quarter of 2020 was 12.4 billion euros higher than during the same same time in 2019.

DNB says that “the increase is the result of an increase in disposable income of 2.4 billion euros and a decrease in consumer spending by 10 billion euros, compared to last year.” This disposable income includes wages, benefits, pensions, interest and dividends, minus taxes and contributions. 

It is possible that in the last months of the year, more additional mortgage repayments will be made, which is traditionally the quarter in which this happens the most. In the first half of the year, consumers mainly chose to save.