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Housing Finance Market Overview
In the Netherlands, housing finance is mainly raised from banks and specialist residential mortgage providers like Bouwfonds, with the cooperative bank Rabobank taking the largest market share with a share of 30 per cent in 2008. Mortgage Brokers have an important intermediation role as about 60 per cent of all mortgage transactions were processed through mortgage brokers in 2005. Between 2000 and 2007 the housing finance market has been growing considerably. The mortgage debt to GDP ratio increased from 68.2 per cent in 2000 to almost 100 per cent in 2008. This very high level traces back partly to the Dutch fiscal regime (see next passage).
The Market from the Perspective of the Demand Side
Until recently loan-to-value ratios of over 100 per cent were extremely widespread so that the average LTV ratio in the Netherlands is the highest among OECD countries with 90 per cent in 2006. Yet, a new Code of Conduct for Mortgage Lenders in 2007 has tightened the lending criteria as the government was seriously concerned about the very high private household indebtedness. The share of fixed-interest products was almost 80 per cent in 2007 and almost 90 per cent were non-repayment loans. This high percentage of non-repayment loans can be explained by the Dutch fiscal regime which allows full tax deductibility of most mortgage interest payments at the marginal tax rate for 30 years. Non-repayment loans can maximise the tax rebates. The Nationale Hypotheeke Garantie is a government agency which covers the mortgage payments to the bank if structural repayment problems for homeowners arise. The insurance does not only protect the mortgage lenders but the borrowers as well. Around 30 per cent of the total value of mortgages outstanding is insured.
House Price Development
The Netherlands saw a dramatic increase in house prices already from 1996 to 2001, with 13.2 per cent price rises annually. From 2002 to 2007 the prices increased by only around 4 to 5 per cent annually. Since the second half of 2008 till the beginning of 2009 house prices have plummeted dramatically, with a decrease in prices of 13 per cent.
Although most mortgage lending is still financed through deposits, securitisation has become an important feature of the mortgage market over the past decade, with residential mortgage backed securities accounting in 2007 for almost 20 per cent of outstanding mortgage debt. Covered Bonds played only a minor role in the Dutch mortgage market.