More than four months into the coronacrisis, we are starting to see the first signs of its impact on the Dutch economy and the Dutch mortgage asset-class. LoanClear analysed a pool of € 126 billion in Dutch mortgage loans and found a significant increase in the amount of borrowers in arrears on their mortgage payments. The index for the 1-2 month arrears bucket increased by 100% from 2019-Q4. The main drivers are likely to be the increasing unemployment rates and decreased borrower income as a result of the coronacrisis.

Source: LoanClear, European DataWarehouse

Arrears spike coincides with unemployment rate increase

The large number of arrears are partially explained by the rapid increase of unemployment rates in the Netherlands, growing from 3.6% in May to 4.3% in June this year. Put into context, the Dutch unemployment rate at the onset of the 2008 global financial crisis was also 3.6%, but only reached 4.3% after seven months (CBS).

Nick van Croonenburg, LoanClear’s Head of Mortgage Advisory: "The COVID-19 pandemic has had a significant effect on the Dutch economy with many sectors still being very limited in terms of doing business. As the period of restrictive measures continues and might become stricter, it is likely that profitability and employment are affected more and mortgage arrears rise even further.”

Self-employed borrowers were hit most by the COVID-19 pandemic, as their share in the arrears bucket increased from 10% in Q4-2019 to 17.6% in Q2-2020.

Payment holidays

As in many other countries, Dutch borrowers have the possibility to apply for a payment holiday, essentially pausing mortgage payments for several months. Contrary to the UK, where all borrowers had the option to pause their mortgage payments, Dutch borrowers could only receive one after the lender ascertained that the loss of income is only temporary. As of May 2020, around 0.6% of borrowers received such a payment holiday (Rabobank).

In LoanClear’s Dutch Mortgage Delinquency index, most of the borrowers who received a payment holiday (and were not in arrears before) are not part of the analysis. As such, the actual number of borrowers in arrears could potentially turn out to be even larger.

Low delinquency levels

Even though the numbers seem daunting, the Netherlands is still known for their relatively low delinquency rates. Also, compared to the previous high in 2014 current delinquency rates remain low. Delinquency levels in 2020-Q2 are 0.47% (0-1 month) ,0.19% (1-2 months), 0.08% (2-3 months), 0.10% (3+ months).

The Dutch mortgage delinquency index is based on the complete ECB eligible RMBS data pool, with an average pool balance of € 126 billion). All data until 23-08-2020 was collected from the European Data warehouse.