The Dutch government has announced changes to its National Mortgage Guarantee Scheme NHG that are likely to impact home sales, ABN AMRO Group Economics believes. The maximum loan size for NHG-eligible mortgages is to be gradually lowered. "Some transactions will simply not happen", says economist Philip Bokeloh of Group Economics. "The lower NHG ceiling is bound to put the brakes on home sales."
The National Mortgage Guarantee Scheme (Nationale Hypotheekgarantie or NHG for short) provides government backing for mortgages with a maximum loan size of EUR 290,000. As of 1 July 2014 this ceiling is to be lowered to EUR 265,000. If, when a house is sold, the proceeds are insufficient to repay the outstanding mortgage, the residual debt is paid out of the NHG pool. For mortgages that are too high to be eligible for NHG, the residual debt remains the borrower’s responsibility.
Not everyone wants to run the risk of being stuck with a residual debt. Going forward, consumers may decide to buy a cheaper home than they initially had in mind. The approaching change to the NHG ceiling on 1 July could therefore have short-term effects on home sales. “Potential buyers looking for a home in the price category up to EUR 280,000 may decide to make up their minds before 1 July. But if they’re looking at houses priced EUR 240,000 or lower, they have no need to hurry,” says Philip Bokeloh.
Unwinding generous NHG guarantee
In July 2009, as a temporary measure to shore up the confidence of house buyers in the wake of the credit crisis, the government raised the NHG ceiling to EUR 350,000. This significantly increased the percentage of Dutch mortgages eligible for NHG. In 2012, a start has been made with unwinding this measure again. Plans are to ultimately lower the ceiling to EUR 225,000, a level based on the average house price in 2013. Only mortgages that are redeemed at least on an annuity basis will be eligible. In 2013, 46 per cent of residential mortgage loans sold by ABN AMRO fell under the NHG scheme. Of the bank’s total mortgage portfolio, 24 per cent is NHG-backed.