Recent increases in living expenses could exacerbate mortgage payment difficulties. This is what the Dutch Authority for the Financial Markets (AFM) stated in its report Borrowing the maximum amount for a mortgage?, published on 18 November 2022. In this publication, the AFM presented the results of its research into the relationship between mortgage lending standards and payment arrears.
It is no secret that the AFM is concerned about what it sees as generous lending standards in the Netherlands. In July 2022, the regulator called on mortgage providers to tighten their acceptance policies.
Several important conclusions aligned with long-held perceptions within the sector.
The key message from the AFM is subtly hidden in the report’s last paragraph. The substantial decline in household purchasing power due to the rising cost of living is reflected in the 2023 lending standards to only a limited extent. It makes sense that the AFM issued this warning during the consultation. That it then expressed its criticism so soon after the adoption and publication of the standards is striking. This way of operating highlights the AFM’s concerns, but it also tampers with the principles of the system of lending standards.
Although the AFM notes that the number of households experiencing payment difficulties is currently limited, it warns about increasing payment challenges due to rising inflation. The concern is that households that have recently obtained a mortgage will be required to excessively reduce their household budget.
Given the concerns, mortgage providers need to approach the issue proactively and preventively.
Several groups can be identified that have borrowed the maximum amount and require specific attention.
Not all these households have faced or will face financial difficulties, but the risk for these groups is higher. It is prudent to identify these groups and inform them of the options for obtaining assistance. Providing information early on about where help can be obtained or where relevant resources are located can have a preventive effect and make it easier to ask for support. Financial challenges are easier to overcome when they are still minor and manageable.
The sector has long advocated for additional scope to facilitate customisation. At the same time, there remains a need for standardisation of lending standards so mortgage loans can be granted efficiently and cost-effectively.
Problematic household debt has attracted a lot of attention since the credit crisis. As a mortgage provider, you are required by supervisory legislation to treat clients with due care if they are unable to meet their financial obligations. Preventive management can play a key role here.
Proper implementation of preventive management can reduce risks and create opportunities on many fronts. We are happy to support you in your preventive management strategy with a Quick Scan.
