First time buyers taking risks in mortgage applications: AFM

The borrowing behavior of people who want to buy a house for the first time is worrying, said the Netherlands Authority for the Financial Markets (AFM) based on an analysis of financial data of first-time buyers. Their mortgage is often high, student debts are not reported to mortgage lenders, and some accumulate credit.

According to the AFM, up to a quarter of first-time buyers appeared to have a mortgage that is higher than the legal standard. This concerns mortgages that are between 50,000 and 70,000 euros higher. The regulator does note that the mortgage is not really too high in all cases. Mortgage lenders are allowed to deviate from the standard with good reason, for example if part of the money is used to make a home more sustainable.

Student debts are also not always reported, even though this is mandatory. The watchdog noted that in 2018 more than two in five first-time buyers had a student loan. Of this group, 10 percent failed to report the debt. According to the AFM, recent consumer research shows that this problem has now become bigger. First-time buyers in particular can be at risk by not reporting, because they are usually less financially resilient. The AFM will talk to mortgage lenders about better compliance with the rules for reporting student debt.

Another group is taking an even greater financial risk by accumulating credits. This group also more often took out a higher mortgage. Last year and this year, the standard for consumer loans for the purchase of, for example, a car or a kitchen were tightened, the watchdog wrote. This makes this problem seem smaller now.

For its analysis, the AFM used figures from Statistics Netherlands (CBS) for the years 2013 to 2018. Although these do not provide a definitive picture of excessive lending, they do show that first-time buyers "take everything out of the closet to get a house", according to the watchdog. The AFM started an investigation among mortgage lenders into compliance with the rules for mortgages. "The results of this study underline the importance of this," said the regulator. The AFM also warned against even more financial leeway for first-time buyers, because this will push up house prices if the supply remains the same.