European regulator warns Dutch about vulnerable housing market


The housing market in the Netherlands remains a threat to the European financial system, according to the EU’s financial risk watchdog ESRB.

The residential property market risk is overheating in eight European Union countries, including the Netherlands, partly from unintended effects of ultra-low interest rates, the ESRB said in a new report.

The ESRB said the Dutch government had done too little to stabilise the sector. The tougher requirements applied to mortgages such as the lower loan to value ratio and cutting back on the mortgage interest rate tax relief were perhaps not enough to reduce the vulnerability of the Dutch housing market, the ESRB said.

The ESBR noted that Dutch households were deep in debt and mortgages in relation to underlying value were higher than elsewhere in the EU. Some 25% of mortgages are higher than the price the property would fetch on the open market and young people in particular have high mortgages.

Such high debts pose a threat to macroeconomic and financial stability, the ESRB said. These households might have to repay their borrowings in the event of a recession and this will be a problem for banks, especially if this is accompanied by a fall in housing prices.

Despite this, the watchdog sees no sign of overheating in the housing market. ‘The prices appear to be low in historic perspective,’ the ESRB said, adding that Dutch banks are ‘well capitalised” and that even more buffer capital would be required in the future.

Less risk

Dutch finance minister Jeroen Dijsselbloem said in a reaction said the market risk had lessened compared to previous years.

‘The package of reforms implemented by the cabinet seeks to stem the increase in household indebtedness, and its associated risks, while supporting a broad housing market recovery in a balanced manner,’ Dijsselbloem said in a written reply.

‘As many of the reforms are being phased in gradually, we expect that the reforms will continue to contribute to a more moderate growth of household indebtedness and its associated risks.’

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