Dutch Watchdog Warns of Risks in Interest-Only Mortgages
Interest-only mortgages, though declining in popularity, still make up a large share of home loans in the Netherlands. Financial regulators see them as risky, but experts suggest most older homeowners have little cause for concern or to make early repayments, NU.nl reported.
AFM Highlights Potential Dangers
According to the Authority for the Financial Markets (AFM), more than half of all Dutch mortgage debt—nearly 900 billion euros—comes from interest-only loans. In contrast to annuity or linear mortgages, these borrowers pay only interest, never the principal amount.
“This can lead to problems at the end of the term,” the AFM warned.
The risk arises when borrowers retire or face income changes, leaving them unable to repay or refinance once the loan term ends. Banks now encourage older clients to review their mortgage arrangements before maturity.
Impact on Older Borrowers
For instance, a 60-year-old homeowner with a loan expiring in ten years may not automatically qualify for a new one. Lenders emphasize that future refinancing options cannot be taken for granted.
European Context and Push for Reform
Interest-only mortgages are uncommon in other parts of Europe. The European Central Bank (ECB) has urged the Netherlands to gradually discontinue this lending practice due to systemic risks.
“The ECB views interest-only mortgages in the Netherlands as a risk and wants to reduce the risks for banks and their customers,” said Sander Burgers, housing market economist at ING.
Conclusion
While the AFM and ECB stress caution, industry professionals argue that widespread panic is unnecessary as long as borrowers plan ahead and understand the implications of their loan terms.
Author’s summary: The Dutch mortgage market still relies heavily on interest-only loans, prompting regulators’ caution but little reason for immediate alarm among older homeowners.
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