Finance Minister Wopke Hoekstra has submitted a legislative amendment to increase the mortgage capacity of dual-income households starting next year. The government wants to give greater weight to the lower of the two incomes when calculating the maximum mortgage. In addition, the way student debt is factored in will be adjusted. Both changes are intended to increase the borrowing capacity for homebuyers.
Higher Mortgage Capacity
Hoekstra submitted this proposal based on advice from Nibud, the government’s budget advisory body and a key party in determining mortgage standards. What does the proposal entail?
90% instead of 80% of the second income in dual-income households will count toward the mortgage calculation. This percentage has already increased significantly in recent years compared to 2013, when only 30% of the lower income was considered in determining the housing affordability ratio (the portion of income that may be spent on housing). Given the rise in workforce participation, Nibud believes the proposed increase is appropriate; the combined income of dual earners has grown.
Student loan debt will weigh less heavily in the calculation. Six years ago, mortgage providers introduced a fixed weighting factor that has never been adjusted, even though interest rates have declined in recent years. Starting in 2021, the new standard will be more flexible and tied to the interest rate of the student loan. When applying for a mortgage, existing loans and their interest rates impact the maximum mortgage amount. Since student loan interest is often close to zero, this change allows for higher mortgage borrowing by reducing those associated costs.
Whether the actual mortgage amount will be higher next year also depends on the woonquote (the affordability norm), which is reassessed annually.
Growing Pressure on the Housing Market
The new proposal has not been welcomed universally. The Dutch Central Bank (DNB) has previously expressed concerns about the easing of mortgage limits. In recent years, buyers have been able to take out increasingly larger mortgages due to low interest rates and rising incomes.
Pressure on the housing market has grown and continues to grow. Research from DNB shows that house prices have not only risen because of the shortage of homes but also due to increased borrowing capacity. In Amsterdam, homes are now often sold quickly and almost always above the asking price. Further increasing mortgage capacity may reinforce this trend. Simply building more homes will not solve the shortage in the short term.
Homeownership Within Reach for First-Time Buyers
If the proposal is approved, dual-income households will have the opportunity to buy a more expensive home in 2021 thanks to higher borrowing capacity. For first-time buyers, owning a home may become more financially feasible. However, higher borrowing means higher monthly interest payments, which brings greater risks. The Dutch Central Bank believes that other measures would better support first-time buyers in the long run, such as phasing out the mortgage interest deduction, which would reduce the need for high loans. The Ministry of Finance has not yet responded to the regulator’s findings.
