AFM Consumer Monitor 2022 Q4: Mortgage Holders

AFM Consumer Monitor 2022 Q4 | Mortgage Holders 20 January 2023 Mara Verheijen, MSc. dr. Karolien van den Akker Joost Leenen, MSc. 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: • describing the behavior and attitudes of financial consumers; • describing market and product aspects in the financial market. Guide This report contains the results of the Consumer Monitor conducted in October 2022 (Q4 2022) on the sub-topic "Mortgages". Fieldwork was conducted in the LISS panel between 3 and 31 October 2022. The questionnaire was administered to a (random) sample of Dutch households with a mortgage. Within each household, the questionnaire was filled out by the person most involved in the household's financial administration. The questionnaire covered various topics, including the choices made regarding mortgage type and interest fixation period, financial risks, and home sustainability. The mentioned differences between groups of mortgage holders (such as age groups) in this report are statistically significant (unless stated otherwise). Table of Contents Introduction Introduction 2 Mortgage Type 3 Interest Fixation Period 11 Extra Repayments 19 Interest-Only Mortgage 23 (Other) Risks 27 Sustaining the Home 30 Contact with Mortgage Advisor and Lender 33 Research Method and Sample Description 39 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 previous measurements. Differences with previous measurements shown in figures in this report must therefore be interpreted with caution.

Mortgage Type 3

• More than 8 out of 10 mortgage holders (83%) know how many loan components their mortgage consists of (10% do not know and 7% do not wish to say). • For most mortgage holders who know how many loan components their mortgage consists of, the mortgage consists of one (43%) or two (37%) loan components (average = 1.9). • For slightly more than half of this group (56%), the mortgage consists of one mortgage type. Some mortgage holders therefore have multiple loan components with the same mortgage type (e.g., two annuity mortgage components). Approximately 4 out of 10 mortgage holders have two mortgage types. This is usually a combination of an annuity mortgage and an interest-only mortgage. For most mortgage holders, the mortgage consists of a maximum of two loan components and a maximum of two mortgage types 4 Question (left): How many loan components does your mortgage consist of? Question (middle and right): Please indicate below for each loan component (1) what the mortgage type is and (2) what the remaining debt (the amount still to be repaid) is. Base (left and middle figure) = mortgage holders who know how many loan components their mortgage consists of, n = 580 Base (right figure) = mortgage holders with two different mortgage types, including an interest-only mortgage: n = 201, including an annuity mortgage: n = 147

• Approximately two-thirds of mortgage holders have an (partially) interest-only mortgage. This share rises sharply with age, from 17% among 18-34 year olds to 94% among those 65 and older (35-44 years: 54%, 45-54 years: 78%, 55-64 years: 74%). • Approximately half of mortgage holders have an annuity mortgage (or annuity loan component). This share decreases with age, from 85% among 18-34 year olds to 20% among those 65 and older (35-44 years: 71%, 45-54 years: 48%, 55-64 years: 37%). • Mortgage holders with medium (MBO, HAVO/VWO) and higher education (HBO, WO) are more likely to have an annuity, linear, or bank savings mortgage and less likely to have an interest-only mortgage than mortgage holders with lower education (primary education, VMBO). An (partially) interest-only mortgage is (still) the most common mortgage type among mortgage holders 5 Question: Please indicate below for each loan component (1) what the mortgage type is and (2) what the remaining debt (the amount still to be repaid) is. *The percentages do not add up to 100% because mortgage holders can have loan components with different mortgage types. Base (left figure and right figure, 2022 measurement) = mortgage holders who know how many loan components their mortgage consists of, n = 580 Base (right figure, 2016 to 2021 measurement) = all mortgage holders, 2016 to 2021: n = 405-623

• The 580 mortgage holders who know how many loan components their mortgage consists of reported a total of 1059 loan components. Of these 1059 loan components, slightly more than 40% are interest-only and approximately 40% are annuity. • The median remaining debt (self-reported, per loan component) is approximately €85,000 for interest-only mortgage components, €87,000 for annuity mortgage components, and €100,000 for bank savings mortgage components (note that bank savings mortgages are only repaid at the end of the term). • The median total remaining debt is approximately €160,000 (25th percentile: €100,000; 75th percentile: €245,000). Slightly more than 40% of all loan components of mortgage holders are interest-only 6 Question: Please indicate below for each loan component (1) what the mortgage type is and (2) what the remaining debt (the amount still to be repaid) is. *Note: The number of observations is low (n < 50). Base (left figure) = all loan components, n = 1059 Base (right figure) = loan components with the respective mortgage type, n = 501 (interest-only mortgage), n = 367 (annuity mortgage), n = 68 (bank savings mortgage), n = 43 (linear mortgage), n = 33 (life mortgage with savings insurance)

• 41% of mortgage holders used the National Mortgage Guarantee (NHG) when taking out the mortgage. • Whether mortgage holders used the NHG in 2022 was not significantly dependent on the channel of taking out the mortgage. Of the mortgage holders who took out their mortgage via an intermediary, 44% used the NHG, compared to 38% of mortgage holders who took out their mortgage directly with a bank or insurer. 4 out of 10 mortgage holders used the National Mortgage Guarantee 7 Question: Did you also use the National Mortgage Guarantee (NHG) when taking out the mortgage? Base (left figure) = all mortgage holders, 2022: n = 692 Base (middle figure) = mortgage holders who took out their mortgage via an intermediary, 2022: n = 378 Base (right figure) = mortgage holders who took out their mortgage directly with a bank/insurer, 2022: n = 269

• For mortgage holders where both the remaining debt and the WOZ (municipal property value) of the home are known, the loan-to-value (LTV) can be calculated. • The share of mortgage holders with an LTV of 100% or higher has shown a declining trend for several years. This can partly be explained by the rising WOZ value of homes in recent years. Additionally, since January 1, 2018, the maximum mortgage can no longer exceed 100% of the value of the home. • In 2022, for 6% of mortgage holders, the remaining debt was higher than the WOZ value of the home. The median LTV is 55%. Within the group with an LTV higher than 100%, the median LTV is 112%. • Mortgage holders who have made extra repayments during the term are more likely to know their remaining debt and the WOZ value of the home (86%) than those who have not (68%). They are less likely to have an LTV higher than 100% (3% vs. 8%). Base = mortgage holders where LTV is known, 2016 to 2021: n = 269-484, 2022: n = 527 Approximately 1 in 20 mortgage holders* reports having a remaining debt higher than the WOZ value of the home LTV unknown: 27% 21% 26% 32% 34% 33% 26% *Mortgage holders where both the remaining debt and the WOZ value of the home are known (74% of the sample) Loan-to-value (LTV) = (remaining debt / WOZ value of the home) * 100%

• Three-quarters (75%) of mortgage holders with a remaining debt lower than 85% of the WOZ value of the home are aware of the possibility to use the equity for an additional (interest-only) mortgage. Approximately half (47%) are aware of the possibility to use the equity for a purchase mortgage, and one-third (34%) are aware of "sale-and-lease back". • 33% of mortgage holders with equity find the possibility to use the equity for a purchase mortgage interesting. The possibility to use the equity for an additional (interest-only) mortgage or "sale-and-lease back" is found interesting by respectively 27% and 14% of this group. • Awareness of the possibility to use equity for a purchase mortgage increases with age (18-34 years: 26%, 35-44 years: 39%, 45-54 years: 44%, 55-64 years: 52%, 65+: 63%). Those 65+ are also more aware of "sale-and-lease back" than those 18-44. However, interest in the possibilities is not significantly dependent on age. Mortgage holders with equity are most interested in a purchase mortgage; one-third find this possibility interesting 9 Question: You have equity if the value of your home on the housing market is higher than the mortgage. Is your home, for example, worth €400,000 and the mortgage €350,000? Then you have €50,000 in equity. The equity of the home can potentially be used for (1) an additional (interest-only) mortgage, (2) purchase mortgage, (3) sale-and-lease back, if this fits within your financial situation. Indicate for each possibility whether you were already aware of it and whether you find it interesting. Base = mortgage holders where the remaining debt is lower than 85% of the WOZ value of the home, n = 599 (total)

• Of the mortgage holders who are interested in using their equity (for an additional mortgage, purchase mortgage and/or "sale-and-lease back"), 44% would like to use the equity for renovation or adjustment of the home. The mortgage holders who have actually used their equity have mostly also used it for this purpose (63%; however, the number of observations is low). • 3 out of 10 mortgage holders who are interested in using the equity would like to use the equity to retire earlier. Base = mortgage holders where the remaining debt is lower than 85% of the WOZ value of the home, who find the possibility to use their equity interesting (n = 279) or have used their equity in one of the three ways (see previous page) (n = 32). Most mortgage holders would like to use the equity for renovation or early retirement *Note: The number of observations is low.

Interest Fixation Period 11

• 95% of mortgage holders report having a mortgage (component) with a fixed rate and 4% a mortgage (component) with a variable rate. • 92% say they have a mortgage with only a fixed rate and 2% a mortgage with only a variable rate. 2% report having both a mortgage component with a fixed rate and a mortgage component with a variable rate (3% do not know). • Most mortgage holders report having a mortgage (component) with an interest fixation period of 16-20 years (37%) and/or 6-10 years (32%). 1 in 5 mortgage holders (19%) has a mortgage (component) with an interest fixation period of more than 20 years. • 13% have mortgage components with different interest fixation periods (82% have a mortgage with one interest fixation period). One fifth of mortgage holders report having a mortgage (component) with an interest fixation period of more than 20 years Question: Please indicate below for each loan component (3) whether the rate is fixed or variable, and (4) for a fixed rate, the interest fixation period and (5) when it expires. Note: The percentages in the figures do not add up to 100% because mortgage holders can have loan components with different rate forms and interest fixation periods. Base = mortgage holders who know how many loan components their mortgage consists of, n = 580

• For approximately half of the mortgage holders (53%), it will be more than 10 years before the interest fixation period of their mortgage (component) expires. 4% has a mortgage (component) whose interest fixation period expires in 2022 or 2023. • 7 out of 10 mortgage holders with a mortgage (component) with a fixed rate made a choice regarding the interest fixation period of their mortgage in the past 5 years (69%). Approximately 4 out of 10 (42%) did this in the past 2 years. Two thirds of mortgage holders made a choice regarding the interest fixation period in the past 5 years 13 Question (left): Please indicate below for each loan component [...] when it expires. Question (right): When did you last make a choice regarding the interest fixation period of your mortgage? Note: The percentages in the left figure do not add up to 100% because mortgage holders can have loan components with different rate forms and interest fixation periods. Base (left figure) = mortgage holders who know how many loan components their mortgage consists of, n = 580 Base (right figure) = mortgage holders with a mortgage (component) with a fixed rate: n = 552

• Most mortgage holders expect to extend their existing mortgage when the interest fixation period expires. Of the mortgage holders whose interest fixation period expires within 3 years, 12% do not yet know what they will do. • Approximately one-third of mortgage holders with a mortgage (component) with a fixed rate made their last choice regarding interest fixation period when taking out the (first) mortgage (35%). Approximately one-quarter (24%) chose a new interest rate and 15% extended the existing mortgage with a different interest fixation period. Most mortgage holders expect to extend their mortgage when the interest fixation period expires 14 Question (left): When your interest fixation period expires, you must make a new choice regarding your mortgage. Which choice do you think you will make? Question (right): You indicated that you [...] made a choice regarding the interest fixation period of your mortgage last time. What did you do then? Base (left figure) = mortgage holders with a mortgage (component) with a fixed rate: n = 552; mortgage holders with a mortgage (component) whose interest fixation period expires within 3 years, n = 74 Base (right figure) = mortgage holders with a mortgage (component) with a fixed rate: n = 552

• 3% of mortgage holders with a mortgage (component) with a fixed rate expect to come into financial difficulties when their interest fixation period expires. • Of the same group, 17% think they (probably) will not be able to pay the monthly mortgage costs if these costs were 1.5 times higher due to a doubling of the interest rate. Hardly 1 in 20 mortgage holders with a fixed rate expects to encounter financial difficulties when their interest fixation period expires Base = mortgage holders with a mortgage (component) with a fixed rate, n = 552

• Two-thirds of mortgage holders with a mortgage (component) with a fixed rate (67%) take into account the possibility of a sharp interest rate increase when (re-)choosing the interest fixation period. Approximately 1 in 10 reports not taking this into account. • Of the mortgage holders whose interest fixation period (of one or more loan components) expires within 3 years, almost everyone (98%) is aware that monthly costs can change when they take out a new interest contract. Most mortgage holders expect their monthly costs to rise (54%) or have no idea what the consequences will be for their monthly costs (30%). Two-thirds of mortgage holders take into account a possible interest rate increase when (re-)choosing an interest fixation period 16 Base (left figure) = mortgage holders with a mortgage (component) with a fixed rate, n = 552 Base (right figure) = mortgage holders whose interest fixation period of one or more loan components expires within 3 years, n = 75

• With interest averaging, the current interest fixation period is broken and a new interest fixation period applies. The new rate is the average of the old rate and the rate at that time. Almost half of the mortgage holders (45%) report knowing what interest averaging (approximately) entails. • 46% of mortgage holders are not familiar with interest averaging. This percentage is highest in the youngest age group: 66% of 18-34 year olds do not know what interest averaging is (35-44 years: 41%, 45-54 years: 42%, 55-64 years: 43%, 65+: 44%). Almost half of mortgage holders are not familiar with interest averaging 17 Base (left figure) = all mortgage holders, n = 692 Base (right figure): all mortgage holders, 2016 to 2021: n = 405-623, 2022: n = 692 Question: Are you familiar with interest averaging?

• Of the mortgage holders who are familiar with interest averaging, 13% have applied it to their current mortgage. Three-quarters of the group (74%) have not applied it and are not considering/considered it. Of the mortgage holders who are familiar with interest averaging, approximately 1 in 10 has actually used it 18 Base (left figure) = mortgage holders who are familiar with interest averaging, n = 379 Base (right figure): mortgage holders who are familiar with interest averaging, 2016 to 2021: n = 249-411, 2022: n = 379 Question: Interest averaging means that you break the current interest fixation period and a new interest fixation period goes into effect. Your new rate is the average of your old rate and the rate at that time. Has interest averaging been used for the mortgage you currently have?

Extra Repayments 19

• 4 out of 10 mortgage holders (38%) have (ever) made extra repayments on the mortgage and 1 in 10 (11%) have (ever) increased the mortgage amount. • Slightly more than half (54%) of the mortgage holders who have made extra repayments did so a year or less ago. Of these, approximately two-thirds (63%) make structural repayments every year. This is 24% of all mortgage holders who have made extra repayments. • For 1 in 20 mortgage holders (5%) who have (ever) made extra repayments, corona played a role in the choice to make extra repayments in the past year (or not). For the vast majority (86%), corona played no role (9% gave a neutral answer). Almost 4 out of 10 mortgage holders have ever made extra repayments on the mortgage 20 Base (left figure) = all mortgage holders, 2016 to 2021: n = 405-623, 2022: n = 692 Base (middle figure) = mortgage holders who have ever made extra repayments, n = 277 Base (right figure) = mortgage holders who made extra repayments 1 year or less ago, n = 141 Question: Interest averaging means that you break the current interest fixation period and a new interest fixation period goes into effect. Your new rate is the average of your old rate and the rate at that time. Has interest averaging been used for the mortgage you currently have?

• The most cited reasons for making extra repayments on the mortgage are (1) lowering monthly costs (51%), (2) the low interest on savings (38%), and (3) not liking having mortgage debt (31%). Lowering monthly costs remains the most important reason for making extra repayments Base = mortgage holders who have ever made extra repayments, 2021: n = 211, 2022: n = 277

• 6 out of 10 mortgage holders know that by making extra repayments on their mortgage, they may qualify for a lower mortgage interest rate; 4 out of 10 mortgage holders are not aware of this. Of the mortgage holders who know they may qualify for a lower rate by making extra repayments, approximately one-quarter (26%) has actually taken steps (this is 15% of all mortgage holders). Another quarter (24%) reported that this was automatically adjusted by the mortgage lender (14% of all mortgage holders). 4 out of 10 mortgage holders do not know that by making extra repayments they may qualify for a lower mortgage interest rate 22 Base (left figure) = all mortgage holders, n = 692 Base (right figure): mortgage holders who know that by making extra repayments they may qualify for a lower rate, n = 403 "The interest you pay on your mortgage depends on the amount of the mortgage debt in relation to the value of your home. When you make extra repayments, your debt decreases in relation to the value of your home. As a result, you may qualify for a lower mortgage interest rate."

Interest-Only Mortgage 23

Question (left): How do you plan to repay your interest-only mortgage at the end of the term? Multiple answers possible. Question (right): Do you expect to come into financial difficulties when your interest-only mortgage (component) expires? Base = mortgage holders with an (partially) interest-only mortgage, 2019 to 2021: n = 251-387, 2022: n = 413 15% of mortgage holders report not knowing how • Most they will repay their interest-only mortgage (component) mortgage holders with an interest-only mortgage (component) are planning to repay the interest-only mortgage by making extra repayments during the term (30%), selling the home (25%), taking out a new mortgage (24%) and/or building up assets outside the mortgage (19%). • 5% of the mortgage holders with an interest-only (component) expect to come into financial difficulties when the interest-only mortgage expires.

• 19% of mortgage holders with an (partially) interest-only mortgage were approached by their mortgage lender or advisor in the past year regarding the risks of this mortgage; approximately equally often by phone (6%) as by letter (9%) or by email (8%). • Two-thirds of the mortgage holders who were approached were (very) satisfied with the information received; 1 in 10 was dissatisfied or very dissatisfied. • 6 out of 10 mortgage holders with an (partially) interest-only mortgage (59%) are willing to share information about their financial situation with the mortgage lender, so that an assessment can be made of the financial situation after the mortgage expires. 1 in 5 mortgage holders with an (partially) interest-only mortgage was approached about the risks of the mortgage type in the past 12 months 25 Base (left and right figures) = mortgage holders with an (partially) interest-only mortgage, 2019 to 2021: n = 251-387, 2022: n = 413; Base (middle figure) = mortgage holders with an (partially) interest-only mortgage who were approached in the past 12 months, n = 74 *Question (right): Are you willing to share information about your current financial situation with your mortgage lender, so that an assessment can now be made of whether you can continue to pay the remainder of your mortgage after the term of the current mortgage expires? 19% was approached in one or more ways (2021: 23%, 2020: 22%, 2019: 24%)

• Two-thirds of mortgage holders know that an interest-only mortgage does not need to be repaid during the term (6