Consumer Monitor Mortgage Closers Q3 2022

AFM Consumer Monitor Q3 | Mortgage Closers January 20, 2023 Mara Verheijen, MSc. dr. Karolien van den Akker dr. Millie Elsen

2 Background The AFM advocates for fair and transparent financial markets. As an independent conduct supervisor, the AFM contributes to sustainable financial well-being in the Netherlands. The Consumer Monitor provides insight into developments in consumer behavior over time. The monitor was launched in 2004 and has been conducted every six months since then. The primary objectives of the Consumer Monitor are: • to describe the behavior and attitudes of financial consumers; • to describe market and product aspects in the financial market. Guide This report contains the results of the Consumer Monitor conducted in August/September 2022 (Q3 2022) on the sub-topic "Mortgages". Fieldwork was carried out in the LISS panel between August 8 and September 18, 2022. The target group of the study includes recent mortgage closers; people who closed a mortgage in the period from August 1, 2021 to September 18, 2022. The group is representative of recent mortgage closers in the Dutch population. The questionnaire covered various topics, including the orientation and closing process, cost aspects, and choices regarding the sustainability of the home. The mentioned differences between groups of mortgage closers (such as age groups) in this report are statistically significant (unless stated otherwise).

Table of Contents Introduction 2 Mortgages 3 Orientation and Closing Process 19 Risks 26 Reward and Costs 34 Sustainability of the Home 37 Research Methodology and Sample Description 41 Important: In 2022, the Consumer Monitor was conducted for the first time in the probability-based LISS panel of Centerdata. Questions and question formulations were also adjusted (simplified). As a result, the results of the 2022 measurement are not (always) comparable with the results of earlier measurements. Differences with earlier measurements shown in figures in this report should therefore be interpreted with caution.

Mortgages 3

• The share of refinancers has fluctuated around 30-35% since 2019, and the share of starters around 20-25%. The share of renovators/sustainability seekers has shown an increasing trend since 2016. With 20%, the share of movers in the 2022 measurement is lower than in the period 2016-2021 (30-35%; but note that a different panel was used). • Only 1 in 3 refinancers closed the mortgage because the fixed-rate period expired. • In the analyses, starters (people who have bought a home for the first time) and re-enterers (people who have moved from a rental home to a home ownership, but have previously owned a home) are combined, and renovators and sustainability seekers are combined. In the rest of this report, the groups are referred to as "starters" and "renovators". Most mortgage closers refinanced, but usually not because the fixed-rate period expired 4 Question: This concerns the period from August 1, 2021 to now [Aug/Sep 2022]. Have you experienced any of the following situations in this period? Base (left figure) = all recent mortgage closers, Q1 2012 to Q1 2021: n = 323-600, Q3 2022: n = 539 Base (right figure): refinancers, Q3 2022: n = 223 Type of Mortgage Closer Starter/Re-enterer Bought a home for the first time/Moved from a rental to a home ownership and previously owned a home Mover Moved from a home to another home Refinancer Refinanced mortgage Renovator/Sustainability Seeker Closed mortgage to pay for renovation or to make the home more sustainable (implement energy-saving measures)

• For most mortgage closers, the mortgage consisted of one (68%) or two (29%) mortgage types. • 53% of mortgage closers chose an annuity mortgage. This mortgage type was closed more often by starters (55%), movers (71%), and renovators (61%) than by refinancers (38%). 53% of mortgage closers closed a (partially) interest-only mortgage. This mortgage type was chosen more often by movers (61%) and refinancers (75%) than by starters (27%) and renovators (35%). Mortgage closers most often chose an annuity and/or (partially) interest-only mortgage 5 Question: Which mortgage type did you close? Base = all recent mortgage closers, Q1 2012 to Q1 2021: n = 323-600, Q3 2022: n = 536

• Half of the starters bought a home after previously living in a rental home. About a quarter moved in together (26%) and 16% moved out to live alone. 1 in 5 starters (19%) wanted to live in a larger home. • Wanting to live in a larger home is the most common situation for movers (47%). 13% of movers wanted to live in a smaller home. 15% of movers moved in together and 6% moved after a separation. Half of the starters moved from a rental home to a home ownership; movers moved primarily because they wanted larger homes 6 Question: Which of the following situations applied? Base (left figure) = starters, n = 116 Base (right figure) = movers, n = 110

• In 2013, the maximum mortgage could not be higher than 105% of the value of the home. This percentage was reduced by 1 percentage point each year until 100% in 2018. Due to the use of legal exceptions for implementing energy-saving facilities, an LTV of up to 106% is still possible. Starters have a higher loan-to-value and borrow (almost) maximum more often than movers 7 As a check, respondents with an LTV > 100% (n = 18) were asked "Are you sure that the amounts just provided are correct?" Base = starters and movers whose LTV/LTI could be calculated Q3 2022: starters, n = 75 (LTV) and n = 58 (LTI); movers, n = 88 (LTV) and n = 58 (LTI) Loan-to-value (LTV) = mortgage amount / purchase price * 100 Calculated only if both amounts were known (starters: n = 75 of 117, movers: n = 88 of 110) Loan-to-income (LTI) = mortgage amount / max. mortgage amount

• 100 Calculated only if both amounts were known (starters: n = 58 of 117, movers: n = 58 of 110)

• Almost half of the mortgage closers who closed the mortgage for the purchase of a home offered more than the asking price when buying the new home (47%). This percentage is higher among starters; they did this more often on the advice of someone else than movers (18% vs. 7%). A large group also states that overbidding was not relevant in their situation (32% in total, 41% among movers). • Of all mortgage closers who closed the mortgage for the purchase of a home, half state that they did not use the financing contingency. About 2 in 10 mortgage closers state that this was not relevant in their situation. Of the mortgage closers for whom this was relevant, 40% state that they did NOT use the financing contingency (this is about 3 in 10 mortgage closers who closed the mortgage for the purchase of a home). Starters more often did not use the financing contingency (on their own initiative) than movers. Almost half of the mortgage closers who closed the mortgage for the purchase of a home offered more than the asking price and 3 in 10 did NOT use the financing contingency 8 Question: Did you ... offer more than the asking price when buying the new home? (left) ... use the financing contingency? (right) Base = starters and movers, n = 223

• About half of the starters and movers felt (very) much pressure to offer more than the asking price. A quarter felt (very) much pressure to make an offer without a financing contingency. • Movers more often felt no or little pressure (starters more often give a neutral answer). • When the mortgage was equal to or higher than the purchase price of the home (versus lower), people felt less pressure to offer more than the asking price, but more often felt (somewhat) pressure to make an offer without a financing contingency. • 18-34 year olds generally felt more pressure to offer more than the asking price and to make an offer without a financing contingency than 55-plus. About half felt pressure to offer more than the asking price of the home *In some groups the number of observations is low (n < 50) Base = starters and movers (excl. answer option "not applicable"), n = 182 (upper figure), n = 181 (lower figure)

• 43% of starters and movers felt (very) much pressure to make a quick decision when purchasing the home. Only 15% felt no or little pressure. • Starters more often felt no or little pressure than movers, and 55-plus felt less pressure than younger mortgage closers. More than 4 in 10 felt (very) much pressure to decide quickly when purchasing the home *In some groups the number of observations is low (n < 50) Base = starters and movers (excl. answer option "not applicable"), n = 197

• About 6 in 10 starters and 7 in 10 movers brought in their own money to secure the financing of the home. Of the refinancers, 20% used their own money. Refinancers much more often than starters and movers state that they had own savings but did not use them. The majority of starters and movers brought in their own money to secure the financing of the home 11 Question: Did you use your own savings to secure the financing [starters/movers: of the home]? Note: If you closed the mortgage together with someone else, it concerns the savings of yourself and the person with whom you closed the mortgage. Base (left figure) = starters, n = 114 Base (middle figure) = movers, n = 109 Base (right figure) = refinancers, n = 222

Until 2020, respondents were asked if they had brought in "savings". In 2020 and 2021, a distinction was made in the answer options between "own savings" and "savings of others". Because this can also be understood as a gift (for which a separate question is included), in 2022 respondents were asked if they had invested "own savings". For movers, a distinction was also made in the answer options in 2022 between "Yes, I used my own savings" (shown in the figure above) and "Yes, I used the extra proceeds from the sale of the home (equity)" (not included in the figure above). Starters most often bring in their own savings to secure the financing 12 Question: Did you use your own savings to secure the financing [starters/movers: of the home]? Base = all recent mortgage closers, Q1 2012 to Q1 2021: n = 323-600, Q3 2022: n = 536 Note: If you closed the mortgage together with someone else, it concerns the savings of yourself and the person with whom you closed the mortgage.

• 5% of all mortgage closers closed another loan besides the mortgage to secure the financing. This share does not differ significantly between types of mortgage closers (starters: 7%, movers: 8%, refinancers: 1%, renovators: 5%). • 15% of mortgage closers who closed the mortgage for the purchase of a home closed another loan besides the mortgage to be able to live in the home. This share does not differ significantly between starters (12%) and movers (18%). 1 in 20 mortgage closers closed another loan besides the mortgage to secure the financing; 1 in 6 starters/movers closed another loan to be able to live in the home 13 Question (left): Did you close another loan besides the mortgage to secure the financing [starters/movers: of the home]? Question (right): Did you close another loan besides the mortgage to be able to live in the home? *This loan could have been used for a renovation of the bathroom or for financing the additional costs for the purchase of the home (e.g., notary costs). Base (left figure) = total: n = 534, starters: n = 114, movers: n = 109, refinancers: n = 222, renovators: n = 89 Base (right figure): total: n = 223, starters: n = 114, movers: n = 109

• 1 in 5 mortgage closers (19%) used one or more other methods than using own savings or another loan to reduce the mortgage amount. • Starters (21%) and movers (11%) received a gift more often than refinancers (2%) and renovators (0%). They also most often used a guarantee by family members (7%), although the differences with other types of closers are not significant (movers: 1%, refinancers: 1%, renovators: 3%). 1 in 5 starters achieved a lower mortgage amount with the help of a gift 14 Question: Did you achieve a lower mortgage amount thanks to one of the following methods? Multiple answers possible. Base (left figure) = all recent mortgage closers, n = 534 Base (right figure) = starters, n = 114

• 4% of mortgage closers closed a higher mortgage loan to pay off one or more consumer credits. • Mortgage closers with a (joint) gross annual income between €40,000 and €75,000 did this more often (7%) than mortgage closers with a higher income (1%). Less than 1 in 20 mortgage closers closed a higher mortgage to pay off a consumer credit 15 Question: Did you borrow more money via your mortgage to pay off one or more ongoing consumer loans? Base = all recent mortgage closers, n = 534

• 3 in 10 movers and refinancers who previously had an interest-only part state that the new mortgage has a larger interest-only part. For 2 in 10, the interest-only part of the new mortgage is smaller. • Mortgage closers who sought advice more often state that the interest-only part has changed (61%) than mortgage closers who closed the mortgage without advice (20%): they more often state that they have increased the interest-only part (37% vs. 2%). • Also, mortgage closers who closed the mortgage via an intermediary (67%, versus directly at a bank/insurer: 31%*) and movers (67%, versus refinancers: 46%) more often state that the interest-only part has changed. 3 in 10 mortgage closers who previously had an interest-only mortgage part increased this for the new mortgage *See page 20 for more information on closing channels. Question: Is the interest-only part of your newly closed mortgage smaller, equal, or larger than the interest-only part of your previous mortgage? Base = movers and refinancers whose old mortgage had an interest-only part, n = 229

• The vast majority (86%) of mortgage closers with an interest-only part (who sought advice) state that increasing, decreasing, or keeping the interest-only part was partly or completely on the advice of their mortgage advisor. About 1 in 10 says this topic was never discussed. • Mortgage closers who closed their mortgage (with advice) directly at a bank or insurer more often state that the decision was against the advice of the mortgage advisor (11%) than mortgage closers who closed the mortgage via an intermediary (0%). • The extent to which the advice of a mortgage advisor was followed does not depend on whether the interest-only part was increased, decreased, or remained the same. 9 in 10 mortgage closers with an interest-only part made the choice regarding the height of the interest-only part (partly) on the advice of the advisor 17 Question: Was this on the advice of your mortgage advisor? *The number of observations is low (n < 50) Q1 2019 to Q1 2021: Base = movers and refinancers with an interest-only part who previously also had an interest-only part, n = 212-383 Q3 2022: Base = movers and refinancers with an interest-only part who did not answer "Don't know" to the question on the previous slide AND who sought advice, n = 177

• Mortgage closers who reduced the interest-only part did so primarily by using their own money (29%) or equity (28%) from their previous home, by switching to another mortgage type (27%), and/or by reducing the total mortgage amount (25%). All these methods occur about equally often. Mortgage closers ensured a smaller interest-only part in various ways Question: In what way did you ensure that the height of the interest-only part of your newly closed mortgage is smaller than that of your previous mortgage? Multiple answers possible. *The number of observations is low (n = 50). Base = movers and refinancers whose new mortgage has a smaller interest-only part than the previous mortgage, Q1 2019 to Q1 2021: n = 73-160; Q3 2022: n = 50

Orientation and Closing Process 19

• 62% of mortgage closers closed the mortgage via an intermediary (independent advisor, mortgage shop, or comparison site), 30% directly at a bank, and 5% at an insurer. • Movers most often closed their mortgage via an intermediary (72%); refinancers least often (53%). Most mortgage closers closed the mortgage via an intermediary 20 Question: How did you close your mortgage? Base (left figure) = all recent mortgage closers, Q1 2010 to Q1 2021: n = 323-600, Q3 2022: n = 534 Base (right figure): starters, Q1 2010 to Q1 2021: n = 114-170, Q3 2022: n = 114

Question (upper): How did you close your mortgage? Question (lower) Did you (or the person with whom you closed the mortgage together) close the mortgage yourself online? Because mortgages can in principle also be closed "offline" without advice (i.e., only mediation), the two questions do not measure exactly the same thing. Earlier research by Centerdata (2017) also suggests that it is not always clear to consumers when exactly there is "mortgage advice", which could also (partly) explain differences in answers. The more concrete question of whether one closed the mortgage oneself online likely reflects the actual percentage with an "execution-only" mortgage better. Base = all recent mortgage closers, n = 538 Refinancers say they relatively often closed their mortgage without advice • 30% of refinancers state that they closed the new mortgage without mortgage advice. Among starters, movers, and renovators, this is respectively 7%, 4%, and 11%. • Refinancers most often closed the mortgage independently online (22%). Among starters (6%), movers (3%), and renovators (5%), this percentage is significantly lower. • 55-plus more often state that they closed the mortgage independently online than 18-34 year olds.

• 41% of all mortgage closers would seriously consider robo-advice (including 16% only if a human checks the advice) and 46% only want advice from a human. A substantial group (14%) does not know. • The acceptance of robo-advice decreases as age increases. Of the 55-plus, 56% only want advice from a human, compared to 37% of the 18-34 year olds. About 4 in 10 state that they would seriously consider robo-advice (under conditions) 22 Question: You can also receive online automated advice: so-called robo-advice. You are then not in conversation with a human, but receive an answer from a computer. Algorithms analyze your question and draw up advice. Suppose you received advice from such an algorithm regarding your mortgage (robo-advice). What would you do with that robo-advice? Base = all recent mortgage closers, n = 534 You can also receive online automated advice: so-called robo-advice. You are then not in conversation with a human, but receive an answer from a computer. Algorithms analyze your question and draw up advice. Suppose you received advice from such an algorithm regarding your mortgage (robo-advice).

Question: In what way did you contact a mortgage advisor regarding the mortgage? Multiple answers possible. Base = recent mortgage closers who closed their mortgage with advice, n = 424 A face-to-face conversation is the most mentioned form of contact with the mortgage advisor • Mortgage closers most often had face-to-face contact (63%) with their advisor. • About a quarter (23%) spoke with the advisor via a webcam session/video call. 18-34 year olds did this more often (31%) than 55-plus (14%).

• Some banks give a discount on the mortgage interest rate when a customer also has a current account at that bank and uses it actively. About a third (32%) of mortgage closers are not aware of this possibility. • In general, people do not often use this (7%). Starters more often open a new current account to get the interest advantage (12%) than renovators (0%), the other two groups fall in between (movers/refinancers: 7%). About a third of mortgage closers already had a current account at the relevant bank before closing the mortgage. About a third of mortgage closers did not know that some banks give interest discounts when you have a current account at the same bank 24 Question: Some banks give 0.1% - 0.2% discount on the mortgage interest rate when a customer also has a current account at that bank and uses it actively, for example by receiving income on it. Do you have your current account at the same bank as where your mortgage runs? Base = total: n = 532, starters: n = 114, movers: n = 108, refinancers: n = 221, renovators: n = 89

• About a quarter of mortgage closers (23%) are familiar with PSD2. Of the mortgage closers who are familiar with PSD2, a quarter (25%) state that they have actually used a PSD2 connection (this is 6% of all mortgage closers). • Starters are less familiar with PSD2 (15%) than refinancers (28%), the other two groups fall in between (movers: 23%, renovators: 27%). A quarter of mortgage closers are familiar with PSD2; 6% remembered using a PSD2 connection 25 Question (left): Were you familiar with PSD2 before this explanation? Question (right): Did you use a PSD2 connection? Base = total: n = 532, starters: n = 114, movers: n = 108, refinancers: n = 221, renovators: n = 89 *Since February 2019, PSD2 (Payment Services Directive) has existed. This is a European law for the payment traffic of consumers and companies that makes it easier for consumers to share financial data with third parties. For a PSD2 connection, you give permission to your bank so that information from your bank transactions is retrieved instead of you looking up and providing this information yourself.

Risks 26

• A quarter of mortgage closers (25%) was not sure that the mortgage application would be accepted by the mortgage provider. About 1 in 10 was uncertain or very uncertain. • Starters (63%) were less often sure about the acceptance of the mortgage application than refinancers (84%). • Mortgage closers with an income lower than €40,000 (this is the income of the person(s) who closed the mortgag