Statistics Netherlands reported today that the overall Dutch household debt exceeded 742 billion euros at the end of March 2015, i.e. 2 billion euros up from one quarter previously. In the period between the end of September 2012 andd mid-2014, household debts were still declining. The recent increase is partly due to the revival of the housing market and the lower level of gift tax exemption. Interest rates have also been at a historically low level for quite a while.
National mortgage debt reduced less rapidly
Total household debt grew by 2 billion euros in the first quarter of 2015, after a period when debts had decreased annually. The recent increase is partly due to the fact that the national mortgage debt was reduced less rapidly. With 651 billion euros, the residential mortgage debt constitutes the bulk of total household debt. Total mortgage debt has grown for years, but when the residential property market collapsed by the end of 2008, the situation changed. The growth rate slowed down and - on balance - mortgage debt has declined since the fourth quarter of 2012 and the total debt of Dutch households was reduced.
There are various reasons for the reduction of the total mortgage debt. Since 1 January 2013, new mortgages must be repaid and it is no longer possible to take out a savings-based or investment mortgage. Until mid-2013, residential property prices had fallen and young homeowners in particular are faced with a situation where the value of their mortgage exceeds the value of the home they live in. Making additional mortgage repayments became popular, also because interest rates are low, but in the latter half of 2014, the overall mortgage debt was reduced much more slowly than in the previous period.
The fact that the national mortgage debt is decreasing less rapidly is largely caused by the current revival of the housing market. If more houses are sold in a particular period, the household mortgage debt tends to grow. Starters on the housing market usually take out a high mortgage to finance their property; people who sell their homes have often - at least partly - repaid their mortgage. Thus, when homes are sold, the total mortgage debt will grow.
Another factor is the temporary exemption of the gift tax scheme, which was discontinued on 1 January 2015. During the period 1 October 2013-31 December 2014 people were allowed to donate 100 thousand euros tax free, provided the amount was used to reduce the mortgage debt, buy a new house or renovate existing property. On 1 January 2015, the regular gift exemption of 52 thousand euros was reintroduced.
Less consumer credit, more other loans
On balance, the outstanding consumer credit debt was reduced marginally in the first quarter of this year, but other types of loans increased, a pattern that has been manifest over the past decade. The increase in other types of loans has to do with rising student debts.
Debt ratio households down
Although debts increased, the household debt ratio has fallen almost continually since the fourth quarter of 2012. Yet, the Dutch household debt ratio is still among the highest in Europe. The debt ratio is defined as the total debt of all households expressed as a percentage of GDP and is frequently used to facilitate international comparison. The European Commission, for example, uses the debt ratio to detect macroeconomic imbalances in a country’s economy. In 2013 and the first half of 2014, repayments largely accounted for the lower debt ratio, but the decrease over the fourth quarter of 2014 and the first quarter of 2015 are entirely caused by the rise of the GDP.