Fewer Dutch “mortgage prisoners” owing to house price rises and low interest rates

Fewer Dutch mortgage borrowers will be in negative equity as rising house prices lower loan-to-value (LTV) ratios, according to Moody’s Investors Service, adding that low interest rates will boost existing borrowers’ affordability and motivate first-time buyers.

“Rising house prices, low interest rates and the solid economy will underpin the reduction in mortgage prisoners. Loan affordability will also improve in 2016, keeping arrears and losses low in the deals we rate,” said Jeroen Heijdeman, a Moody’s analyst.

“The number of borrowers who are trapped in their mortgages is nonetheless disparate across the country. Provinces like Flevoland and Noord-Brabant have more than twice the proportion of mortgage prisoners compared with Limburg, Zeeland and Groningen. While these borrowers do have options to resolve their debt burdens, they are limited and strict criteria apply”, said Greg Davies, an Assistant Vice President at the rating agency.

The Moody’s analysis shows the proportion of borrowers with a high indexed LTV (above 102%) is set to fall to 24% in 2016 from 33% in 2015, based on an anticipated house price rise of up to 5%. Those in the most difficulty are borrowers with a high indexed LTV ratio and full interest-only mortgages, or those with high LTV ratios and insufficient income to refinance their mortgages.

Moody’s defines “mortgage prisoners” as borrowers with loans in Dutch residential mortgage-backed securities that are unable to refinance on to a lower mortgage interest payment rate, or change their mortgage provider because they either have: (1) a LTV ratio above 102% and a full interest-only mortgage loan,