Incomes rising slightly, household debts continue to fall

In the first quarter of 2014, the net real disposable income of households was  0.2 percent higher than in the first quarter of 2013. It is the first rise in two years. Household debt fell by 2.4 billion euros, of which 1.8 billion euros was in household mortgages. These new figures were released by Statistics Netherlands today.

Very modest rise in wage sum

Net real disposable household income was adjusted for price changes. It consists not only of wages but also of other income components, such as benefits, income of self-employed people and income from capital. The rise in income is partly caused by higher income from capital, such as dividends. Furthermore, the social insurance benefits and the income of self-employed people rose slightly. The total wage sum saw a very modest increase. This is due to lower job numbers. Adjusted for inflation, the wage sum actually decreased.

Changes in disposable income

Changes in disposable income

Households lowering their mortgage debt

The mortgage debt of households decreased for the sixth quarter in a row. There are various possible explanations for this. For instance: the interest rates in savings accounts are very low, which encourages people to use their savings for mortgage redemption. Also, since 1 October 2013 parents are allowed to make a tax-free 100 thousand euro gift to their children if this is used to redeem their mortgage, buy a new house or finance a refurbishment. The Dutch government also changed the tax relief on mortgage interests as of 1 January 2013. After this date people can only get tax relief if they take out a repayment mortgage. 

Non-mortgage household debts fell by 0.6 billion euros in the first quarter of 2014. This includes  consumer credit.

Relatively high debts

Dutch households have fairly high debts in comparison with most other countries in the European Union. This is because Dutch households took out many savings deposit mortgages and investment-based mortgages in the past.  These mortgage types are not prevalent in other European countries. In savings deposit mortgages and investment-based mortgages people do not redeem their mortgage but they are accruing capital either in a bank account or in a home capital insurance (Kapitaalverzekering Eigen Woning). The first savings deposit mortgages were taken out in de mid-eighties. Many of these early savings deposit mortgages are likely to be redeemed in the very near future.

Household loans

Household loans

Wouter Jonkers