Six in 10 home owners whose property needs urgent repairs to the foundations cannot afford to pay for it, according to a new report by financial authority AFM.

Around 5% of Dutch properties have urgent problems due to drier summers, lower water tables and the fact that many houses were built after World War II without proper foundations.

The scale of the problem – which some experts believe could in future affect up to a million properties – has not yet been factored into house values or house prices.

The report is the first to look at the impact on individual home owners. Of some 425,000 properties that need repair, 120,000 are urgent – with the worst “foundation” rating of D or E according to a new measure used since April in valuation reports.

Using data from the KCAF foundations risk body and details on salaries and loans from Dutch statistics office CBS, the new report looks at whether home owners can afford to pay for repairs. It found most of them do not have enough savings and that one in five cannot and should not be able to borrow the money either.

“The most acute risks affect more than 120,000 homeowners,” says the report. “Such repairs are costly – averaging €92,000… More than 75,000 homeowners lack sufficient financial resources to cover these repair costs immediately from liquid assets. For over 25,000 homeowners, taking out a loan does not seem to constitute a responsible financing option.”

At a press presentation, Tobias Vervliet said that new, young homeowners and people who have recently borrowed to the max against the property value are particularly vulnerable. Areas such as Rotterdam, Dordrecht and Haarlem are also especially risky.

Homeowners association Vereniging Eigen Huis said earlier this month that while valuation reports since April give an indication of the foundation quality, buyers only find out this information after signing a buyers’ contract – which can lead to problems with financing their offer.

The AFM said that this information needs to be available early in the selling process – like energy labels, which a seller needs to provide when marketing the property. “The earlier in the sale process, the better,” said Vervliet. “Not just for the buyers but also the homeowners who are there.”

The research found that while the total costs of repairing foundations varies considerably – and the sooner you fix the problem, the cheaper it is – 25,000 households have an urgent issue, no cash to fix it and that it would be irresponsible for them to borrow more. The total cost of this shortfall is €3 billion.

Recommendations

The AFM, which does not directly regulate housing but does oversee property funds and pensions – which often invest in housing – recommends that more information is made available.

It wants the risk of foundations to be a standard part of valuation and mortgage lending and for lenders and government to provide more options to fill the financing gap.

The total repair cost of the worst affected houses is €11 billion, according to the AFM. Because this has not yet been factored into house prices, it is unclear what effect the new calculation has on the total valuation of Dutch housing stock and WOZ values, which are partly based on local sale prices.