Anyone who is looking for a home this fall will have noticed by now: mortgage interest rates have fallen for the eighth week in a row. Banks and other lenders are now lending money again at, or sometimes below, the 4 percent interest rate limit.
A mortgage loan with a fixed interest period of ten years currently has an interest rate of 4 percent on average. In October this was still more than 4.5 percent, according to data published by mortgage advisor Van Bruggen Adviesgroep on Wednesday. And the expectation is that the decline in interest rates will continue.
Aspiring buyers can borrow more money due to falling interest rates and their monthly payments will be lower with a new mortgage. This means that more Dutch people will be eligible to buy a home, creating more demand on the housing market and causing prices to rise further. With lower interest rates, prospective buyers will also bid higher against each other. In short, lower mortgage rates will further drive up house prices.
Why are mortgage rates falling again? “Mortgage providers also raise money themselves, and they do this, among other things, on the capital markets,” says Nic Vrieselaar, economist at Rabobank and specialized in the housing market. “Interest rates there have fallen sharply recently. The financial markets already seem to be hinting at possible interest rate cuts by the European Central Bank and the American Federal Reserve.” Central banks have stopped raising interest rates over the past year, with the aim of curbing inflation.
One hundred viewings
The question is, says Oscar Noorlag of Van Bruggen Adviesgroep, whether central banks will really lower their interest rates quickly. “The market is increasingly pushing forward the moment when central banks will cut interest rates, to the point where it becomes somewhat opportunistic. If this continues at this pace, we will be at 1 percent by the end of next year. That doesn’t seem realistic to me.”
The prices of existing homes have been on the rise again since this summer. Real estate agents report situations that resemble the madness of a few years ago. For example, Willemien Quist, a real estate agent in Utrecht, recently received more than a hundred registrations for viewings for a home for sale. But is that necessarily due to the mortgage interest? “There is so much going on in the housing market right now,” says Quist. “The main reason for the high prices is the scarcity of housing. Not enough new homes are being built. And we see unintended effects of government measures.”
Quist mentions the declining rental supply in her city. For example, investors are reluctant to invest in new rental properties, pending a law by Minister Hugo de Jonge (Public Housing, CDA) that limits rents for mid-range rental properties.
Quist says that people are more likely to buy a home than rent due to the lack of rental properties. What also has an influence is the exemption from transfer tax for young people under 35 for homes up to more than half a million euros. Young people on the housing market therefore compete more against each other.
But the mortgage interest rate itself also has quite an impact, says Vrieselaar. “Specific measures affect a certain group of buyers, or house prices in a certain category,” he says. “But the mortgage interest applies to everyone. Not only you, but also all your competitors in the housing market can borrow more.”
What difference does that make now that mortgage interest rates are falling? Two average incomes can together borrow approximately 408 thousand euros at an interest rate of 4.7 percent, Vrieselaar calculates. If the interest rate is half a percent lower, the amount increases to 417 thousand euros. Yet it remains “a lot of waste,” says Vrieselaar. “Others can also borrow more, so your position in the housing market will not change much.”
Forecast 2024
House prices are also expected to rise further next year. For example, Rabobank expects an increase of 4.5 percent, returning to the peak level in 2022. This is partly due to the lower mortgage interest rate, says Vrieselaar, but another factor is more important: inflation adjustment. “We’ve had super high inflation,” he says. “Many people receive an inflation adjustment on their wages, perhaps less than they would like, but still. If incomes rise by 6 to 7 percent, people can borrow more.”
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Oscar Noorlag of Van Bruggen Adviesgroep thinks that house prices will rise even further, between 7 and 10 percent. “We think that mortgage interest rates will fall a little further than the major banks outline. There will also be new mortgage standards that will increase the borrowing capacity of single people, and energy labels will count in the amount you can borrow for a home.”