The 10-year mortgage spread has fluctuated within a range of 70bp, from 110 to 180bp, since the first quarter of 2023. The 20-year moved within a channel between 140 and 200bp in that same period. As illustrated in Figure 1, both the 10-year and the 20-years spreads have recently shifted close to the middle of the range, to approximately 135 and 155bp for 100% LTV loans.
Figure 1 Mortgage spreads 10 and 20 year
Increase in mortgage applications volume continues
Figure 2 illustrates a further 10% increase in purchase application volume from the first quarter of 2024, and a 27% increase compared to the same quarter in 2023. Although the purchase volume did not reach the record levels observed in 2022, it remains significant, with a volume of nearly €20 billion in the second quarter of 2024. Given the current relatively high mortgage rate environment, there is limited incentive for borrowers to refinance earlier than strictly necessary.
Figure 2: Mortgage application volume per type
Loan Porting Jumps to a New Record
In brief, loan porting is a valuable option for homeowners with a low-rate mortgage loan, allowing them to transfer their low-rate interest contract to a new mortgage loan to purchase a new property. Homeowners with such favorable mortgage rates who wish to relocate, are likely to utilize this option. Consequently, alongside the increase in purchase application volume, the volume of loan porting has also reached a record high. In the second quarter of 2024, the loan porting volume amounted to €8.2 billion representing 26% of the total market, compared to €5.2 billion in the second quarter of 2023. The quarter-on-quarter growth in 2024 was €1.2 billion, or 17%.
Figure 3 illustrates the distinction between NHG (National Mortgage Guarantee) and non-NHG loan porting volumes. Two significant observations can be made from this data:
Firstly, a loan porting mortgage loan is typically combined with a new mortgage loan to facilitate the purchase of a property that is likely more expensive than the previous residence. This explains the minimal growth in NHG loan porting mortgages. NHG mortgages are primarily designed for first-time homebuyers, resulting in limited financial flexibility to secure an additional mortgage on top of the ported loan. Figure 3 above also shows, although minor compared to non-NHG, that loan porting within the group of NHG mortgage loans increased in Q1 2024. This is likely the result of the increase of the maximum loan limit of NHG at the start of 2024. A nuance is needed, as the risk class of the ported loan is not known. For that reason we should be careful with firm conclusions.
Secondly, loan porting becomes financially advantageous primarily when mortgage rates have increased. This trend is clearly evident in the rapid rise of loan porting activity since the second quarter of 2022. Prior to 2022, loan porting was a rare or non-existent practice.
New equilibrium of the 6-10Y maturity bucket with a market share of 70%
The rapid escalation of interest rates since the beginning of 2022 has encouraged a significant shift in preferred fixed interest rate periods. As illustrated in Figure 4, during the low interest rate environment up to the fourth quarter of 2021, there was a clear preference for long-term fixed rate periods exceeding 10 years. For instance, the market share of the 21-30 year maturity bucket increased from 20% in the first quarter of 2020 to nearly 40% in the first quarter of 2022. The 11-20 year sector maintained the largest market share during this period, albeit decreasing from 60% to just above 40%. The market share of the 6-10 year sector remained relatively stable at a comparatively low level of below 20%.
This paradigm shifted from the second quarter of 2022 with the rapid increases in rates. Currently, the market share of the 6-10 year bucket is by far the largest, commanding 70% of the market. The 11 year plus sector has contracted to just 20% of the market share. With the availability of data from the first and second quarters of 2024, it appears that a new equilibrium has been established, characterized by the stable market share of the 6-10 year bucket.
For market participants active in this maturity bucket, this shift presents a significant opportunity that warrants careful consideration.
Figure 3: Application volume of loan porting
NHG market advances further
Despite the year-on-year and quarter-on-quarter increases in purchase and refinance mortgage application volumes in 2024, the volumes observed prior to 2023 remain significantly higher, particularly when focusing solely on non-NHG volumes. Conversely, NHG volumes are approaching record highs. For the first and second quarters of 2024, the combined NHG volume reached €8.6 billion. In comparison, the volumes for the corresponding quarters in 2023 were €6.4 billion and €6.9 billion, respectively.
Figure 4: Market share per maturity bucket
We anticipate a decrease in NHG purchase and refinance volumes in the third and fourth quarters of 2024, as the maximum loan limitation of NHG will increasingly become a limiting factor given the rapid rise in house prices. The increase in house prices is rather extreme, yet it has become more normalized, with prices increasing by 7.2% quarter-on-quarter and 13.6% year-on-year. According to the Dutch Association of Realtors and Valuers (NVM Makelaars), the median purchase price of an existing home in the second quarter of 2024 was €468,000. In comparison, the maximum loan amount for an NHG mortgage is €435,000. Although first-time homebuyers are not typically seeking homes near the median house price, it is conceivable that the availability of more affordable houses that meet the NHG restriction is becoming increasingly limited.
Figure 5: Purchase and refinance application volume
Quarterly Market Update for Q2 2024
This article is the third chapter of our Quarterly Market Update for Q2 2024. In this report, we outline developments in the Dutch economy, the housing market and the mortgage market, and conclude with some key portfolio insights.