One year after the spike in arrears caused by the COVID-19 pandemic, we see the impact on Dutch mortgage credit performance fading out in 2021-Q2.

LoanClear found a decrease in mortgage arrears from 2020-Q4 to 2021-Q2 after a sharp increase during the first two quarters of 2020. This was the result of an analysis on an approximately € 110 billion pool of Dutch mortgage loans included in ECB eligible RMBS deals.

At the end of 2021-Q2, the proportion of 1-2 month and 2-3 month arrears buckets had decreased by 56.5% and 65.2% respectively, relative to the end of 2020-Q2. The main drivers for the increase in arrears during the second half of 2020 were likely to be the rapid increase in unemployment rate, the introduction of payment holidays (which in some cases was also reported as arrears), and decreased borrower income, especially for self-employed borrowers, as a result of the coronavirus crisis [1].

In reaction to the pandemic, the Dutch government introduced multiple measures supporting employment and business continuity. Measures included reimbursement of fixed costs of SMEs, temporary bridging measures for employment, deferral in payment of taxes for entrepreneurs, and providing credit. The measures combined with the opening of the economy, likely contributed to the restoration of mortgage arrears to pre-pandemic levels.

Figure 1: Development of Dutch mortgage arrears segments. Source: LoanClear, European DataWarehouse

Arrears movements coincide with unemployment rate development

The increased mortgage arrears during the second half of 2020 are partially explained by the rapid increase of the unemployment rate in the Netherlands, jumping from 3.6% in May 2020 to 4.6% in August 2020. From September 2020, the unemployment rate started declining towards 2.9% in July 2021, which is even lower compared to March 2020 when the coronavirus outbreak started. As unemployment rates fluctuate, mortgage arrears seem to follow a similar trend as displayed in Figure 2 below.

Figure 2: Unemployment vs. Dutch mortgage arrears. Sources: CBS, LoanClear, European DataWarehouse

The lifting of many restrictions imposed at the beginning of the coronavirus crisis, led to a decrease of the unemployment rate, as many heavily affected sectors recovered.

By the end of September 2021, however, most of the financial measures that were introduced in support of entrepreneurs, self-employed and employers with severe turnover loss will be terminated. This might increase the uncertainty around the mortgage arrears going forward [2].

[1] - During 2020-Q2 the arrears amount of self-employed borrowers increased by 50% compared to employed borrowers for which the arrears amount increased by 20%.

[2] - https://business.gov.nl/corona/overview/the-coronavirus-and-your-company/