Moody's: Dutch mortgage market's recovery prospects strengthen following sales surge

A recovery in house sales in the Netherlands will increase the proceeds that originators recover in cases of foreclosure, reinforcing the stable performance of the Dutch residential mortgage-backed securities (RMBS) market, says Moody's Investors Service in a special report published today. Moody's forecasts a maximum house price increase of up to 5% in 2015.

"The Netherlands' housing market has gathered momentum, growing more robust against a backdrop of rising consumer confidence and growing economy. We expect that real GDP will increase by 1.7% in 2015 and that unemployment will remain low, further supporting borrower affordability and lessening the likelihood of mortgage arrears," observes Jeroen Heijdeman, a Moody's Assistant Vice President -- Analyst and author of the report.

"However, we note that a reduction in the maximum allowed loan-to-value (LTV) ratio in 2016 and the fact that approximately a third of existing home owners remain in negative equity will moderate the pace of the housing market's recovery," he says.

The new report: "Surging Sales Boost the Dutch Housing Market's Recovery and Raise Recovery Prospects in RMBS Deals" is available on www.moodys.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1006200.

Available data show that a 16% rise in house sales in the first five months of 2015 has boosted the Dutch house price index, which has risen by 2.6% year-on-year. On a 12-month rolling basis, 31% more homes were sold in total as of May 2015.

The rating agency says borrowers will continue to benefit from low interest rates and increased lender competition. Moody's expect delinquencies to remain stable, with average arrears of 60+ days in the range of 0.50% to 1.50% in 2015-2016. Loan-by-loan foreclosure data from key Dutch RMBS originators provides evidence of increasing average recovery ratios (and therefore decreasing losses) from property sales since 2012. At the same time, the volume of property work-outs is decreasing, demonstrating the market's recovery.

Moody's forecasts that further tightening of underwriting criteria and the high proportion of negative-equity home owners will limit the recovery's speed in 2016. The maximum LTV ratio is set to decline gradually to 100% in 2018, which is high by international standards. Excluding mortgage-linked repayment policies, approximately a third of Dutch homeowners are in negative equity, where an outstanding mortgage loan is greater than the property's updated value. In view of these factors, Moody's expect a more moderate recovery in 2016 after an initial, more significant house price increase. With clear government measures in place to date, a further decline in maximum LTV ratios could also dampen the recovery path, with potentially fewer first-time buyers.