Family loans for buying a home may push up house prices

Family mortgages - lending money from family members to buy a home - can drive up house prices, De Nederlandsche Bank (DNB) said after investigating the construct. Family mortgages are primarily used by wealthier families and can result in unintended tax benefits and advantages on the housing market for an already privileged group, the DNB said.

In 2020, 645,000 households in the Netherlands used a family mortgage, mostly in combination with a mortgage from a financial institution. The total value of family mortgages is 70 billion euros, approximately 10 percent of the total mortgage debt in the Netherlands.

The DNB found that households with family mortgages are younger than the average mortgage holder, 42.6 years compared to 46.3 years. “This age difference may indicate that households can enter the housing market earlier with the help of a family mortgage,” the regulator said. “It is also striking that households with family mortgages are, on average, wealthier and also have parents with more assets. That is not surprising. After all, the parents must have wealth to be able to provide a mortgage to the child.”

The central bank noted that 18 percent of households with family mortgages spend more of their income on their home than permitted by the Nibud standards. That is twice as many as the group with only bank mortgages. Households with family mortgages, on average, also have higher housing debt and more expensive homes than households with only bank mortgages.

According to the DNB, family mortgages offer various benefits to users. They have a better chance of getting a home because they can offer more. “This can have an upward effect on house prices,” the central bank said. Households that borrow above the Nibud standard also receive more mortgage interest deduction. “This additional tax credit is ineffective and unintended and mainly affects wealthy households.”

The DNB urged financial institutions to better assess whether applicants also have other family loans when providing a mortgage. Better testing can also reduce the unintended tax benefits, the regulator said.