Interview

‘Don't use lending standards for purposes for which they were not intended’

Arjan Vliegenthart (Nibud) on responsible mortgage lending

Interview

‘Don't use lending standards for purposes for which they were not intended’

Arjan Vliegenthart (Nibud) on responsible mortgage lending

According to Arjan Vliegenthart, who was appointed director of Nibud (the National Institute for Family Financing) two years ago, the existing standards for mortgage lending are quite fit for purpose. He says that rather than relaxing those standards, there are other, more effective ways to help first-time home buyers or promote sustainability in the Netherlands. ‘Burdening people with crippling debts is no solution, even less under the present circumstances.’

Not long before the corona pandemic struck, Vliegenthart was on a working visit to Ireland. There he witnessed in person what happens when large numbers of people are unable to pay their mortgage. ‘Compared with other countries, we're doing quite well in the Netherlands. Even in the middle of this crisis, it seems that most people don't need a deferral on their mortgage payments. That's due in part to the fact that we tightened our lending standards in response to the previous crisis.'

The standards are meant to prevent excessive debt

Vliegenthart points out however that the picture is less positive in other parts of the housing market, where first-time buyers in particular are having a hard time. ‘It's all very well for those who already own a house, but with the current housing shortage and the increase in house prices, first-time buyers are finding it almost impossible to buy a property. Some see this as an argument to relax lending standards, also because the interest rate is so low. But we shouldn't forget that those standards are meant to prevent excessive debt, not to help people buy a house.’

‘That's why I think the government should look for better mechanisms,' says Vliegenthart. ‘They could, for example, prevent private investors from buying residential property under a certain value, or encourage municipalities to zone building land exclusively for starter homes. The same applies to efforts to promote sustainability. It is government policy to phase out gas, but it's difficult to reconcile that with most households' financial means. So what you need are solutions at the macro level. Compare it with the problem of student loans: we shouldn’t solve that by decreasing the weight of the debt in a person's credit assessment, but by reforming the loan system.’

Corona-inspired solidarity

Vliegenthart points out that in the Trend Monitor, the AFM does not focus solely on lending standards, but considers the financial resilience of households from a broader perspective. ‘That's going to be really important in the months ahead. One in three people in the Netherlands fear that before long they won't be able to pay their bills anymore. In my view, that is where we are going to be most vulnerable in 2021. So far the government has been extremely generous, which is why financial problems have been less serious than anticipated. Banks have become more flexible and bailiffs set more lenient deadlines, but if this corona-inspired solidarity wears off, large groups of people are in for trouble.'

And, says Vliegenthart, it is not only the self-employed and young people who are vulnerable: ‘That group looks set to expand in 2021. We shouldn't forget that mortgages are just one part of people's overall expenditures. Financial problems have a tendency to accumulate before they eventually come to light. The period between the moment a problematic debt was incurred and the moment debt relief assistance is granted is five years, on average. So what we are seeing now is just the tip of an iceberg that will reveal its full size in 2015.’

Problematische schuldenlast

The financial equivalent of a Periodic Vehicle Inspection

This issue calls for a change in perspective from the financial sector, consumers and supervisors alike. Vliegenthart is calling on parties to abandon their focus on financial self-reliance. ‘We know that many people are more vulnerable than they believe they are. So ideally, financial institutions should only offer “no regret” options. For their part, consumers should be prepared to undergo a periodic financial inspection; the equivalent, as it were, as of the Periodic Vehicle Inspection, for a periodic check-up of their financial situation, plans for the future and expectations, so that financial institutions can provide assistance in time.

That requires a proactive supervisor whose task is not limited to that of a market manager making sure that the rules are clear and complied with, but extend to identifying and addressing financial vulnerabilities at an early stage. This will benefit society at large. Now is the time to make it happen.'

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