The mortgage rate: it's on our minds. The mortgage rate is hugely important when you buy a house. It largely determines what you have to pay on your mortgage each month. We keep a close eye on interest rates, because based on them we can predict, just a tiny bit, what the housing market is going to do. However, there are no guarantees. In the past we've also sometimes seen exactly the opposite happen. Today I'm writing a blog with the help of ChatGPT. We have to move with the times ;)
Contents
- The difference between the mortgage rate and the capital market rate
- Factors that influence the housing market
- Will the current banking crisis really make interest rates fall quickly?
- A good moment to buy a house, or wait and see?
The mortgage rate and the capital market rate are two important factors that influence how the housing market develops. Over the past quarter there have been some interesting developments in this area. In this blog I'll explain what the mortgage rate and the capital market rate are, how they've developed and what the expectations are for mortgage rates and the housing market in Utrecht.
The difference between the mortgage rate and the capital market rate
To start with, it's important to understand what the mortgage rate and the capital market rate are. The mortgage rate is the interest you pay on your mortgage. This rate depends on the size of your mortgage and its term. The capital market rate is the interest banks pay to borrow money on the capital market. This rate depends, among other things, on economic developments and the interest rate policy of the European Central Bank.
Over the past quarter the mortgage rate has risen slightly. This is because the capital market rate has also risen. The interest on Dutch government bonds has gone up because the economy is picking up and there's more demand for money on the capital market. However, the European Central Bank has indicated that it will keep interest rates low for the time being, so rates aren't expected to rise quickly.
The mortgage rate compared with 2008
First the mortgage rate: in the first quarter of 2023 the average mortgage rate was around 4.5%. In the first quarter of 2008 the average mortgage rate was even higher, at 5.38%. This means the mortgage rate has fallen sharply over the past fifteen years, but has also risen again. In terms of mortgage rates, we're almost back at the 2008 level.
The capital market rate compared with 2008
Then the capital market rate: in the first quarter of 2023 the interest on ten-year Dutch government bonds was around 0.85%. In the first quarter of 2008, however, this rate was much higher, at 4.17%. So here too there has been a sharp fall over the past fifteen years.
Changing relationships
The relationship between the mortgage rate and the capital market rate was very different in 2008 from what it is now. Back then the mortgage rate was much higher than the capital market rate, partly because of the risk profile of mortgage loans. At the time, banks were taking a relatively large risk because they had granted lots of mortgages to people with little equity of their own and/or a flexible income. This forced banks to charge a higher interest rate to compensate for that risk.
The situation is different now. Thanks to stricter regulation and better credit assessments, banks have started granting less risky loans, which has made the mortgage rate fall sharply. In addition, since the financial crisis the European Central Bank has greatly relaxed its interest rate policy, so the capital market rate has also fallen considerably.
In short, the mortgage rate and the capital market rate have fallen sharply over the past fifteen years. In 2008 the relationship between these rates was very different from now, because banks were granting riskier loans back then and the ECB hadn't yet relaxed its interest rate policy. In 2008 you could still take out an interest-only mortgage. In 2008 you were allowed to finance up to 106% of the value of the home. The so-called top-up mortgage (tophypotheek). This meant that besides the purchase price of the home, you could also finance additional costs such as transfer tax and notary fees.
However, the scheme was abolished in 2018, so it's no longer possible to finance more than 100% of the value of the home.
Factors that influence the housing market
The mortgage rate and the capital market rate are important factors that influence the housing market. Over the past quarter the mortgage rate has risen slightly because the capital market rate has also risen. However, rates are expected to stay low for the time being. As for the housing market in Utrecht, the expectations are positive. House prices are falling. But the pressure is building. Could that make prices start rising again instead of falling?
Will the current banking crisis really make interest rates fall quickly?
Every Monday I share the latest Utrecht housing market figures on Instagram. For a long time the mortgage rate was around 4.65% (Rabobank Basis, 10-year fixed, 100%). Gradually the rate rose, then fell slightly again, and it now stands at 4.9%. The current banking crisis could have various effects on interest rates in the coming month. On the one hand, the crisis could lead to higher rates as a result of uncertainty and risk aversion on the financial markets. When investors are uncertain about the financial health of banks and other financial institutions, they may demand higher interest rates to protect their investments. This can lead to a rise in the capital market rate, which in turn can affect the mortgage rate.
On the other hand, the banking crisis could also lead to lower rates as a result of intervention by central banks. Central banks may decide to lower interest rates to soften the economic impact of the crisis and stimulate lending. This could lower the mortgage rate and so reduce financing costs for home buyers.
At the moment, however, it's hard to predict what effect the banking crisis will have on interest rates in the coming month. That depends on various factors, including the scale and duration of the crisis and the policies of central banks and governments. So it's important to monitor the situation closely and follow developments on the financial markets.
A good moment to buy a house, or wait and see?
Interest rates are exciting. As I said earlier, they determine what you pay each month. The rate is still lower than at its peak in 2008. But prices have also doubled. Inflation is high, and our population has grown enormously and keeps growing. However, our housebuilding isn't going fast enough and is too expensive. I expect the problem to be unmanageable in 5 years' time. By then buying a house really will be only for the rich. So it seems smart to me to go ahead and buy a house, and not just for our wallet 😉
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