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ACM: underwater mortgages do not result in higher interest rates for homeowners

Homeowners with reduced incomes or with mortgages that are ‘underwater’ are often bound to their current banks. Switching banks is usually not possible because the new bank refuses the potential switcher. The Netherlands Authority for Consumers and Markets (ACM) has found that, in such situations, homeowners are not worse off with their current bank. It is estimated that hundreds of thousands of homeowners in the Netherlands are hardly able to switch banks or are even unable to do so at all.

The homeowner’s bank does not carry out a new risk assessment when the fixed-rate term ends. This is beneficial for homeowners whose incomes or the values of whose homes have decreased. The new interest rate is not raised as a result of the bank’s increased risks. On the other hand, if a homeowner does switch, the new bank will carry out a new risk assessment based on the current value of the home, and on the homeowner’s current income. Such a new assessment may lead to a rejection of the refinancing application.

Banks are allowed to decide for themselves whether or not they accept ‘switchers’ of whom the incomes or property values have decreased.  ACM has found that banks have different acceptance terms, which creates uncertainty in the market. ACM calls on banks to be clearer about what refinancing options such homeowners have. The Dutch Banking Association (NVB) has answered that call. Dutch banks are planning to launch an information portal about outstanding mortgage debts early next year. This will result in increased transparency, including about this particular topic.