“It’s crucial for NHG to maintain funds in reserve"

The National Mortgage Guarantee (NHG) currently holds 1.7 billion euro in reserves, a direct result of the minimal claims made by homeowners on the guarantee. This raises questions: How relevant is NHG still? We asked Kay Mennens, Senior Portfolio Manager Alternative Credits at APG Asset Management, for insights.

The NHG has repeatedly increased its limit. Until now, the guarantee that protects homeowners from residual debt applied to properties priced up to 435,000 euro, which will soon be raised to 450,000 euro. Roughly five years ago, the maximum guarantee threshold for an NHG mortgage was well below 300,000 euro. This increase directly reflects the rise in housing prices.

You can also look at it differently and turn it around; the increase in house prices is a result of the increasing limit value of the NHG. How do you see this?
“The increase in housing prices is mainly driven by other factors, such as scarcity. Not only are available homes for sale limited, but the rental market is also tight. It’s worth noting that a minority - about 40 percent of homes now - are purchased with an NHG-backed mortgage. This used to be different: in the crisis years of 2012 and 2013, as much as 80 percent of all homes were purchased with NHG backing.”

Given the sharp rise in home prices, NHG’s guarantee fund is rarely used. How valuable is NHG now?

“It’s very valuable, especially for homebuyers. A home is the largest purchase for many people, and not everyone can fully comprehend the associated risks. NHG provides them with certainty that they won’t be left with residual debt in challenging times, for example, in cases of divorce or unemployment. This assurance costs buyers 0.4 percent (down from 0.6 percent) of the property purchase price. For a home priced at 450,000 euro, this ‘guarantee fee’ is just 1,800 euro. Moreover, buyers often secure a lower mortgage rate, which means NHG buyers generally have lower monthly payments. So, it’s highly advantageous for buyers. It’s also beneficial for international investors in the Dutch mortgage market, who are sometimes alarmed by the high financing percentages allowed in the Netherlands. Thanks to NHG, they gain additional certainty that they’ll recover their investment. For pension funds that invest in the mortgage market, however, NHG isn’t necessarily valuable. Due to the interest rate reduction, an NHG mortgage yields less, while the credit risk even without a guarantee is already quite low.”

With NHG holding 1.7 billion euro in reserves, couldn’t this substantial fund be put to better use than simply being saved?

“1.7 billion euro is, of course, a huge sum that could be used for many beneficial purposes. For instance, it could help first-time buyers by providing additional purchase discounts or accelerate the sustainability of homes. But frankly, I think this would be difficult to justify. What if harder times come and more people start claiming the guarantee? Sufficient funds need to be available to cover those situations - you can’t simply say ‘no.’ While it’s hard to imagine now, I believe very few properties are currently ‘underwater.’ This was different in 2012 when, according to the Dutch Association of Real Estate Brokers, as many as 700,000 homes carried mortgage debt that exceeded the home’s value at the time. For those who needed to sell for any reason, they faced a residual debt. NHG prevents this. But for that protection, it’s essential to keep reserves intact.”