An economic crisis often causes financial uncertainty and hesitation around major purchases. A collapse of the housing market was expected as a result of the current coronavirus crisis. But the opposite has occurred: consumers continue to buy homes and take out mortgages. The crisis still appears to have little effect on consumer confidence.
Government support creates confidence in the housing market
After the outbreak of COVID-19, the government introduced a support package to help businesses. Thanks to this financial aid, confidence in the economy has only slightly declined. The unemployment rate has also remained steady. These two factors largely explain the continued confidence in the housing market and the strong demand for mortgages. Consumers are still willing to make big financial decisions.
Coronavirus has not impacted demand for owner-occupied homes
According to the “Monitor Koopwoningmarkt” report by the Housing Value Expertise Centre, part of the Faculty of Architecture at TU Delft, the market for owner-occupied homes is expected to remain stable throughout the rest of 2020, provided unemployment does not rise. If unemployment increases, demand for homes could drop as consumer willingness to buy declines.
Strong demand for homes and mortgages
In the second quarter of the year, more homes were sold than in the first. Prices continue to rise due to this ongoing high demand. So far, the coronavirus crisis has not caused investors to sell off large numbers of properties. The average sale price of a home has now reached a record high of €327,000.
Along with the demand for housing, demand for mortgages is also very strong. Nearly 146,000 new mortgage applications were submitted in the second quarter of this year, a 5.3% increase. Compared to the same period last year, that’s an increase of almost 40%. In 46% of these cases, it involved refinancing an existing mortgage or taking out a second one. Because of favorable interest rates, many people are switching to lower-rate mortgages or changing mortgage types. Taking out a second mortgage for a renovation is also attractive: interest rates are low, and the interest is tax-deductible.
Equity combined with a mortgage as financing
The Expertise Centre expects that pressure on the housing market will remain high. Incomes have risen in recent years, interest rates are low, and borrowing capacity for dual-income households has expanded. As a result, mortgage demand remains strong. The proposed increase in borrowing capacity for dual earners in 2021 will make buying a home more feasible for first-time buyers. A combination of personal savings and higher borrowing capacity makes financing a home easier.
