Mortgage debt catches up with the Netherlands

Housing prices have plummeted in Amsterdam, above, as well as the rest of the Netherlands. “We should’ve repaired the roof while the sun was shining,” said Marieke Heemskerk-Zondag, who lives southeast of the city and is saddled with two mortgages. “The real estate market in the U.S. went down, but we thought, ‘Hey, it ain’t going to happen to us.’”
(AFP/Getty Images)

WEESP, Netherlands — The Dutch dream isn’t that different from the American one. Nor is the nightmare that many people have woken up to.

Hundreds of thousands of residents rushed to buy homes in the Netherlands as property values rocketed in the 1990s and 2000s. Encouraged by American-style tax breaks and by banks eager to shower money on them, borrowers took out huge mortgages, sometimes larger than the value of their homes.

The global financial meltdown killed the flow of cheap credit. House prices have tumbled nearly 20% over the last four years. And the Dutch, who have freely lectured countries caught up in Europe’s debt crisis on the evils of reckless spending, now find themselves in an embarrassing and increasingly uncomfortable position.


Because of the overheated property market, Dutch households are the most heavily in hock anywhere in the Eurozone, the group of 17 nations that share the euro currency. Despite the country’s reputation for frugality and its impressive savings rate, household debt levels here outstrip those in Greece, Portugal and Spain, which have had to accept international bailouts.

Collectively, mortgage debt in the Netherlands exceeds the country’s gross domestic product. Many of those loans are interest-only mortgages, peddled by profit-hungry banks during carefree times. Now, with the drop in property values, nearly 1 in 5 homeowners are “underwater,” owing more than their home is worth.

At the same time, the generous tax deduction on mortgages has deprived the public purse of billions of dollars, a major loss for the cash-strapped Dutch government, which has imposed stinging austerity measures amid a double-dip recession.

Many economists, officials and homeowners agree that the system is unsustainable. But changing it has been difficult.

“We should’ve repaired the roof while the sun was shining,” said Marieke Heemskerk-Zondag, who lives here in the small city of Weesp, southeast of Amsterdam. “The real estate market in the U.S. went down, but we thought, ‘Hey, it ain’t going to happen to us.’”

Heemskerk-Zondag, 40, speaks from painful experience.

She and her husband are saddled with not one but two mortgages. In the middle of the last decade, with thoughts of having a second child, the couple decided to swap their small upper-floor apartment in a rapidly gentrifying district of Amsterdam for something bigger.


The real estate market was still so hot that the couple resorted to leaving notes at promising-looking homes asking if the occupants were interested in selling. They finally opted for a centuries-old fixer-upper in Weesp, a short train ride away from Amsterdam.

They held on to their apartment during renovations on the new place, then put it on the market in September 2008.

“Bad decision,” Heemskerk-Zondag said. “The week that Lehman Brothers went bankrupt, that’s when we put the ‘For sale’ sign up — almost the exact day.”

More than four years later, the apartment remains unsold. The couple are juggling payments on two interest-only mortgages, which has been just about manageable because both have good jobs. Heemskerk-Zondag works in the global commerce department of beer maker Heineken, and her husband, Robin, is an IT consultant.

Fortunately for Dutch banks, the rate of homeowner default has so far remained relatively low in part because of rules on how much people can borrow in relation to their incomes. But critics warn of a potential time bomb for lenders. Some damage has already been inflicted: Earlier this year, the Netherlands’ fourth-largest bank, SNS Reaal, was taken over by the government because of steep losses on its real estate loans.

Diving property values and the indebtedness of Dutch households have also resulted in reduced consumer spending, further dragging down the economy.


Many homeowners are redirecting spending to pay down some of the principal on their mortgages. Until recently, the tax deductions on mortgage interest were so attractive that there was little incentive to chip away at a loan’s principal. The Netherlands is the only country in Europe to offer such deductions.

The tax breaks, combined with the seemingly unstoppable rise in housing prices, fueled the popularity of big interest-only mortgages. Loans for 120% of a home’s value were not uncommon, with borrowers using the extra money to make improvements or to finance cars and family vacations.

“The system makes you enlarge your mortgage debt as much as possible and to pay off as little as possible. It’s quite sick,” said P.J. Boelhouwer, an expert on the Dutch housing market at the Delft University of Technology. “Most people took as much as possible because they could deduct. It’s our national sport.”

But the drop in property values means it’s no longer such a treat. About 800,000 homeowners, out of 4.3 million in total, are underwater. Most are young people who bought within the last decade and who currently stand little chance of selling their homes or moving up the real estate ladder, Boelhouwer said.

As in the U.S., the tax deduction on mortgage interest, which has existed in the Netherlands for about 100 years, is a sacred cow that politicians have mostly been afraid to touch. Past warnings that the system was not sustainable were brushed aside.

With all the problems that have arisen, lawmakers recently tightened the rules on deductions to spur homeowners to pay down principal and to discourage new buyers from becoming too highly leveraged.


Officials have recognized the steep cost of the tax breaks for the government as well: at least $12 billion in lost revenue last year.

After berating southern European countries for letting their budget deficits balloon, the government here is now under pressure to rein in its own overspending. Slightly shamefaced Dutch officials are hoping the European Commission will grant their country more time to meet the mandatory deficit target of 3% of GDP or less.

The Dutch economy, normally one of the Eurozone’s most robust, is expected to languish in recession through the end of this year at least. Property values have stabilized over the last two or three months, but no one is predicting a rebound anytime soon.

“Eventually when the Dutch get more confident, the prices will go up, because there are not enough houses. But there is no trust at this moment, so people are not buying,” said Wim de Leeuw, a real estate broker in the city of Leiden. He has had to close six of his 12 offices and lay off more than half of his employees.

Heemskerk-Zondag, the Weesp resident with two mortgages, has no idea when she and her husband will be able to unload their Amsterdam apartment. At this point, “if we would break even, we would be very lucky,” she said.

But like the American dream, the Dutch version still has its believers. Heemskerk-Zondag is hopeful that things will eventually get better.


“So far we’ve been able to manage,” she said. “We’re optimistic people. In that sense, we’re more like the Americans are.”