‘Sharp fall in mortgage holders at increased risk with an interest-only mortgage’

The number of mortgage holders at increased risk of payment difficulties and/or a mortgage shortfall has fallen by 63% in recent years.

In recent years, the Dutch Authority for the Financial Markets (AFM) has encouraged mortgage lenders to develop an approach for potentially vulnerable clients with a wholly or partly interest-only mortgage. According to the regulator, lenders must continue their efforts in the years ahead to make clients aware of the potential risks and encourage them to take action where needed.

Fewer clients at increased risk

Risks of wholly or partly interest-only mortgages

Zdenka van Schaik: “The AFM appreciates the sector’s efforts and is satisfied with the results achieved. An interest-only mortgage often gives homeowners additional financial flexibility. However, it is important that people understand that an interest-only mortgage must also be repaid or refinanced at the end of its term. Some households with a wholly or partly interest-only mortgage may face payment difficulties. For example, monthly payments may rise when mortgage interest tax relief ends, income may fall after retirement, or mortgage interest rates may rise. If a home is sold, including through a forced sale, a shortfall may arise if the sale proceeds are less than the outstanding mortgage debt.”

A tailored approach

Many interest-only mortgages are due to reach the end of their term between 2033 and 2038. Since 2016, the AFM has encouraged mortgage lenders to develop an approach for potentially financially vulnerable clients with a wholly or partly interest-only mortgage. All mortgage lenders have introduced a tailored approach for these clients as part of a proactive mortgage management policy. This enables clients to make informed choices and act in good time to prevent problems at the end of the mortgage term.

1.68 million clients contacted and informed

Van Schaijk: “Since the AFM approach was introduced in 2019, mortgage lenders have contacted a total of 1.68 million clients with a wholly or partly interest-only mortgage by letter, telephone or online. For 370,000 clients, they assessed whether the interest-only mortgage would remain affordable in the future. This has given lenders a better understanding of their clients’ financial circumstances. Some 744,000 clients have taken steps to improve their financial position, for example by making a one-off or regular mortgage repayment, switching to a mortgage that repays part of the principal, or saving more. The number of clients at increased risk fell by 63% during the programme. This decline is partly attributable to the actions clients took and partly to rising house prices.”

Continued attention

“The AFM appreciates the efforts of mortgage lenders and the results achieved,” says Van Schaijk. “At a round-table meeting, we evaluated the approach taken in recent years with representatives from the sector. In a report, we linked the findings from the evaluation to principles for applying insights into consumer behaviour. We consider it necessary for lenders to continue paying attention to potentially vulnerable clients, particularly when market conditions call for it.”