The EHN Blog
How interest rates impact the Dutch Housing Market (2022)

What impact do higher interest rates have on housing prices in The Netherlands? 


Cost of financing in the Netherlands


One of the main drivers of housing prices in the Netherlands, other than supply and demand, is the cost of financing


When we talk about the cost of financing, what we’re really referring to are:


a) closing fees 

b) transfer tax (0-8%)

b) interest rebate

c) tax-free capital gains when selling the property 

d) tax-free parental gifts (‘jubelton’)  and 

e) mortgage interest payments


This last element plays a major role for a lot of buyers. In the Netherlands, we see that a majority of homeowners (>60%) have a mortgage. This figure is significantly higher than our neighbours in Germany (26%) and compared to the European average (25%). On top of that, the Dutch system allows you to have a mortgage up to 100% of the value of the property. Which has an upward impact on prices.


Source: dnb.nl


A historical look at interest rates


If we look at the historic interest rates for a mortgage in the Netherlands, we see that interest rates are at an all time low. Up until the early 90’s, interest rates were around and above 8%. Whereas currently in 2022, interest rates (fixed for 5 or 10 years) are far below 2%. Of course, this isn’t only referring to mortgage rates, but to national and global rates in general - which also applies to your savings account. 


Source: hypotheker.nl


Current financial situation and expectations for 2022


What we see is that interest rates went up this year with most of the banks and financial institutions. And it is likely that interest rates will continue to rise in the upcoming years. However the increase of interest rates seems to be currently on pause in the near term1. But what can we expect in the mid term? 


The war in the Ukraine and its effect on the housing market

Current geopolitical conditions are having a downward impact on interest rates in the market, which can also result in mortgage rates going down. 


However the actual decrease is not that significant, so mortgage providers don’t have an immediate reason to lower the interest rate on mortgages. Most mortgage providers have also recently received an increased demand for new mortgages, and still need to process them. So it seems unlikely that they will lower their interest rates to win more clients.


Inflation and the housing market

Secondly, interest rates are also influenced by inflation. Actual inflation rates are quite high - even above 7%2. This most likely means that interest rates on obligations will rise and as a result, the interest rates on mortgages will follow the same curve. The exact impact however is not yet clear and will depend on the decisions made from several central banks.



Impact of interest rates on housing prices


The most relevant question for you of course is to understand the expected impact of higher mortgage rates on housing prices. 


Full disclaimer - we cannot predict the future, as many conditions play a role in housing prices. 


However we do know that two major components play a very important role defining the purchase price of a house. 


Supply and demand

The first major variable is the economic principle of supply and demand. The current supply of properties is still too low to be able to meet the current demand. Numerous studies have indicated there’s currently a shortage of around 300 000 homes.


And although developers and the government are trying to facilitate the building of new properties, it is likely that the objective of creating 100.000 new houses per year will not be easily achieved. 


Main reasons are the high prices of raw materials, the lack of employees in the building sector, and the limiting regulations for nitrogen emissions. These three factors often result in the delaying or cancellation of potential new build projects, and keep the supply in the market lower than we’d hoped for. 


Cost of financing


The second important factor, which we covered in the beginning of this article, is the cost of financing - which is highly impacted by mortgage rates. The remaining questions then are: by when and by how much. As described above, the answers will only be discovered in the next coming weeks and months ahead. 


However, we can give you a tip already. 


Housing market professor Peter Boelhouwer predicts that an increase up to 3% will only slow the rise of purchase prices of properties. Only above 3% might it be that purchase prices will drop.


Key Takeaways:


  • Mortgage rates are at a all time low

  • Interest rates went up fast in the beginning of 2022 

  • A rise of interest rates is likely but the exact rates are uncertain

  • Supply and demand are still not aligned and keep playing a role in the evolution of housing prices 

  • It is expected that only interest rates above 3% can have a negative impact on housing prices, and until that moment, prices are still expected to rise


If you’re interested in exploring your mortgage options, we’d be happy to connect you with our recommended partners. Schedule a call today!

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