Dutch Watchdog Highlights Risks of Interest-Only Mortgages
Interest-only mortgages, while declining in popularity, remain common in the Netherlands. Financial regulators regard these loans as risky, but experts suggest most older homeowners don't need to panic or rush to repay early, according to NU.nl.
Prevalence and Nature of Interest-Only Loans
More than half of the mortgage debt in the Netherlands is made up of interest-only loans, totaling nearly 900 billion euros, as reported by the Authority for the Financial Markets (AFM). Unlike annuity or linear mortgages, borrowers pay only the interest without repaying the principal during the term.
“This can lead to problems at the end of the term,” the AFM warned.
Potential Challenges for Homeowners
Homeowners who retire or face employment changes may struggle to repay or refinance their loans when the mortgage term expires. Banks are urging older borrowers to review their mortgage plans. For example, a 60-year-old with a loan ending in ten years cannot assume they will automatically qualify for a new mortgage.
Regulatory Perspective and European Context
Interest-only mortgages are uncommon in most of Europe, and the European Central Bank (ECB) has pressured the Netherlands to phase them out. The ECB perceives these mortgages as a risk to both banks and customers.
“The ECB views interest-only mortgages in the Netherlands as a risk and wants to reduce the risks for banks and their customers,” said Sander Burgers, a housing market economist at ING.
In response, lending conditions for interest-only mortgages have been tightened.
Summary
While interest-only mortgages pose long-term risks, regulatory measures and expert advice suggest that older Dutch homeowners generally face limited immediate concerns.
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