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Mortgage margins have decreased since NMa quick scan

Since the publication of the Quick Scan on Mortgage Interest Rates in November 2010, mortgage margins in the Netherlands have decreased, and, in early 2011, were at pre-financial-crisis levels. The decrease in margins has been accompanied by an increase in competition. This is one conclusion the Netherlands Competition Authority (NMa) draws in its study into competition in the Dutch mortgage market. As part of that study, the NMa looked specifically into the possibility of collusion, but did not find any indications of price-fixing agreements by mortgage providers, or of any other violations of the Dutch Competition Act.

Henk Don, acting Chairman of the Board of the NMa, says: ‘Several non-Dutch banks have recently been able to gain market share over the major Dutch banks. In addition, insurers increasingly appear to be competing with the major banks. Competition on the mortgage market has increased as a result thereof.’ The fact that these other providers have been able to gain market share is a positive sign according to the NMa. Mr. Don explains: ‘It means that consumers shop around before they make a decision.’ Furthermore, he believes that all the attention and public outcry surrounding the NMa scan may have put pressure on the banks to adjust their margins. ‘However, we will continue to keep a close watch on the developments on the mortgage market,’ Mr. Don adds.

The margins may have decreased, yet the NMa sees room for improvement. For example, it appears that various mortgage providers inform their customers quite late regarding the expiration date of their fixed-rate period. Consumers thus have less time to seek offers from other providers, and are less well prepared to negotiate on a new mortgage interest rate. The NMa is therefore calling on all mortgage providers to inform their customers well in advance that their fixed-rate period expires.

Consumers equally play a crucial role in stimulating competition. They could save on mortgage costs by comparing multiple providers, and take other providers into consideration as well, besides the major banks, particularly now that the NMa study has revealed that the major Dutch banks generally charge higher interest rates than other providers do.

It is unlikely that the historically high margins, which the NMa had already identified earlier, are the result of the price leadership bans that the European Commission imposed on banks that were given government support: ABN Amro, AEGON and ING. These measures have only been in effect since November 2009 in ING’s case, and even later in the cases of AEGON and ABN Amro, whereas the margins had already been increasing well before that date. 

The study into the mortgage market has been carried out by the Financial Sector Monitor (MFS), and was assisted by the NMa’s Office of the Chief Economist. MFS is a team within the NMa that carries out studies into competition in various financial markets. The Office of the Chief Economist conducted an econometric study, which has also been published in a separate document as part of the NMa Working Paper series (no. 5), and which can be downloaded here.