Annemarie van Gaal: Shell game

The government is mesmerised by the shell game played by the financial world, writes Annemarie van Gaal

Imagine you are the head of a company which renders services to a million people each and every month. You are in the enviable position of receiving a government subsidy for half of the costs of one of these services. It works both ways: the client will not feel the need to go elsewhere and your company doesn’t have to worry about price too much.

But this is not all. Now imagine your company’s operations are completely risk free. You render your service each month and when the client’s personal circumstances force him to stop paying you just go on rendering the service, except now that same government guarantees payment. 


Utopian? Well, no. Dutch banks are in that very same, comfortable position when it comes to mortgages. Ridiculous? Well, yes. There is no need for fierce competition battles where mortgage interest rates are concerned because the client is satisfied with his mortgage tax relief and any risk posed by non-payment is covered by the National Mortgage Guarantee. No less than 80% of mortgages are included in this government guarantee scheme.

The news that mortgage interest rates were far too high caused a bit of a stir the other day. According to home owners’ association VEH rates could be out by as much as 25%. My goodness.

Subsidies almost always distort the market and the biggest distortion of them all is taking place in the Dutch housing market. Banks suffer because market distortion causes an imbalance between mortgages and savings, and because they have to attract expensive foreign funding under the Basel 3 rules. Consumers suffer because they are left with crippling remaining debts and have to cough up mortgage interest rates that are far too high.


During his election campaign, Mark Rutte repeatedly said he would not tamper with mortgage tax relief because ‘it stimulates home ownership’. This is piffle. All mortgage tax relief does is stimulate mortgage ownership, preferably of the largest and interest-only variety. This will guarantee the maximum profit from the mortgage tax relief paid by our very own government. Both the government and the housing market are of the opinion the high interest rates are a result of a lack of competition between banks.

But it’s not competition that is our main problem, it’s market distortion.

Last weekend I was in London, where mortgages are highly competitive and even supermarkets sell them. I was struck by the fact that mortgage interest rates are coupled to the amount put down as a deposit. A two-year, fixed rate mortgage with a 25% deposit comes in at 2.79% while the same mortgage with a 40% deposit only costs 2.59%. Go to five-year fixed interest rates and the figures are 3.39% with a 30% deposit and only 2.95% with a 40% deposit.

Most British banks don’t sell interest-only mortgages and those who do will only offer them to people who have already paid off over 50% of their loan. Our banks continue to offer interest-only mortgages and mortgages with ridiculously high interest rates. They don’t take the amounts paid on the mortgage or the deposit paid beforehand into account. And why should they. They are not the ones running the risk.


Mortgage tax relief is costing our government €11.4 bn a year. If it is true our banks are overcharging by 25% then this is where the first 3 bn can be saved. But like a tourist staring at a shell game on a promenade, oblivious of the pick-pocket sneaking up behind, our government, mesmerised by the sleight of hand of the financial world, is incapable of action.


Annemarie van Gaal is an entrepreneur and head of publishing company AM Media. She is also a writer and television personality


This article was published earlier in the Financieele dagblad




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