Sharp increase in young homebuyers despite 32% fall in mortgage applications

There was a significant 32 percent reduction in the total number of mortgage applications filed in the the second quarter of 2023 compared to a year earlier. Despite that reduction, there was a strong 18 percent increase in the number of applications from first-time homebuyers up to the age of 35, according to an analysis from mortgage advisory firm De Hypotheker. The report was released on Friday, the last day of the quarter.

"According to the banks, a further fall in home prices of 5 to 6 percent is on the horizon, while income growth will allow more borrowing. As a result, the maximum loan amount will increase and a relatively larger amount of the income can be spent on housing costs,” said Menno Luiten, the commercial director of De Hypotheker.

The total reduction in applications is largely due to current homeowners who have decided not to refinance their mortgages with interest rates having risen to a range from just under 4 percent up to 5 percent. Mortgage refinancing applications plummeted by 83 percent, compared to the second quarter of 2022, De Hypotheker said. There was a jump between April-June 2022 in refinancing applications as people tried to quickly lock-in a lower interest rate as it became clear the war in Ukraine could drag on for an extended period. That said, one year later, the higher interest rates also meant fewer applications for loans to finance renovations and sustainability improvements.

However, the advisory firm also pointed to several signs that the situation could be improving. Applications filed for the purchase of a home were only down by 4 percent versus a year earlier. The biggest fall was observed among those aged 45 to 55, where applications dropped by 28 percent because of a "mismatch between supply and demand," the advisory group said. "For example, there are too few suitable homes available that meet their housing needs, which means that the flow on the housing market is stagnating."

Greater opportunity for first-time buyers

Overall, more homes are entering the market, particularly as investors pull out due to planned price caps for mid-market rental homes. As a result, young first-time buyers have found an advantage on the Dutch housing market for the first time in years.

"Because the housing supply has increased in recent months and first-time buyers are less affected by investor competition, they have an increasing chance of finding an affordable home. Mortgage interest rates are now higher than a year ago, but have stabilized in the past six months, so the 'fear factor' is over," De Hypotheker wrote in a statement.

At the time the war in Ukraine started in January 2022, interest rates were around 0.90 percent. One year ago, that was around 1.5 percent. The European Central Bank is expected to continue to raise its interest rates, as well, with inflation still far higher than what the organization finds acceptable.

“Various signals indicate that calm appears to be returning to the housing market," Luiten said. "This recovery is especially positive for first-time buyers, whose prospects for affordable housing are improving. We see that this group is once again submitting many more mortgage applications in many provinces compared to last year."

The number of young buyers rose by 49 percent in Limburg alone, and by 35 percent in Groningen and Friesland. A similar 33 percent increase was observed in Zeeland. The two provinces where the increase in young first-time buyers was the lowest included a 9 percent rise in Noord-Holland, and a 2 percent rise in Drenthe.

Still, the housing market remains tightly squeezed, De Hypotheker stated. But because supply is on the rise, more people are finding opportunities to acquire a home despite the tough market conditions and higher interest rates.