How vulnerable are Dutch households with an interest-only mortgage?
Interest-only mortgages in 90 seconds
Did you know that around half the mortgage debt in the Netherlands is in interest-only mortgages? This is estimated to concern 2.7 million households. These mortgages have to be repaid or refinanced at the end of their term.
Until a couple of years ago, an interest-only mortgage was an obvious choice for many people. Why indeed would you take a repayment mortgage when with an interest-only variant you have lower monthly payments and you can still benefit from deducting the mortgage interest from income tax during the term?
This tax allowance has now been limited and more and more homeowners are now wondering what they should do with their interest-only mortgage.
If you are unable to repay the full amount at maturity or cannot arrange a new mortgage, for instance because you are on a lower income as a result of retirement, it could be that you will have to sell your home. And this of course is an unpleasant prospect if you wish to remain in your own home.
Analysis
Most of the current interest-only mortgages will expire around 2035. It is difficult to assess how serious this problem will be at that time, and the AFM is accordingly studying this issue further. However, this is what we know at this point::
- The affordability risk is low. In other words: most mortgage holders are able to pay their monthly mortgage payments. Arrears on mortgage payments in the Netherlands are rare, also for households with an interest-only mortgage.
- Since the mortgage debt is lower than the value of the house in most cases, less than 2% of households are expected to be at risk of a residual debt if they sell their homes.
- The potential problem for them lies mainly in the ability to refinance if they do not wish to sell their home, as the bank will then look at their income and expenditure.
- By 2040, nearly 80% of the main breadwinners in households with an interest-only mortgage will have reached retirement age. In most cases, retirement means a lower income..
- In addition, from 2031 the entitlement to deduct mortgage interest from tax will end for around 80% of the current interest-only mortgages, which will mean higher net interest expenses..
What can you do?
Fortunately, there is still enough time to take action. Most mortgage holders who have already retired when their mortgage matures still have more than 10 years in which to adjust their situation.
What can you do then? You can consider the possibility of making additional repayments, saving or accumulating capital. You can also try to change the type of mortgage you have. All this begins with a positive dialogue with your mortgage adviser or provider..