May Sep Jan 6 May 6 Jan 7 May 7 Sep 7 Jan 8 Sep 8 Jan 9 May 9 Sep 9 May 1 Sep 1 May 17 Jun Nov Apr 6 Feb 7 Jul 7 Dec 7 Oct 8 Mar 9 Aug 9 Jun 1 Nov 1 EMEA Mortgage Market 1H17 Netherlands Property Sales Increase At a Glance Performance measure 3 months+ arrears 1-2 months arrears Realised period loss Constant prepayment rate Home Price qtrly change Property Transactions () RMBS Compare Contacts Current value 2H16 Last year.24.3.44.18.21.2..7.9 7.9 9.7 7. 4. 3.6 7.9 114.3 Rick van Delft +44 2 33 128 rick.vandelft@fitchratings.com 121.6 93.2 Samarth Bhasin +44 2 33 1669 samarth.bhasin@fitchratings.com The next Mortgage Market report will be published after 2H17 Performance Measures More Property Sales: The total number of Three-months plus arrears (LHS) Realised period losses (RHS) property sales increased 16% in 2Q17 year-onyear (yoy), continuing its positive trend for 16 1..16 consecutive quarters. Regional differences exist,.8.12 as turnover in Noord-Holland and Utrecht increased by just 2.2% and 3.% in 2Q17 yoy,.6 whilst all other provinces have shown double-digit.8.4 growth..2.4 Home Price Growth Continues: Home prices increased 4.% in 1H17. Noord-Holland, Utrecht.. and Zuid-Holland are leading the way, with growth of 6%, 4.% and 4.2% respectively. Groningen and Zeeland saw only a modest increase of 1.% and 1.1%. Dutch Housing Market Performance Measures Arrears and Periodic Losses Continuing: Number of property sales (RHS) Home price index (LHS) Loans in arrears by more than three months as a percentage of the current RMBS portfolio balance (Price index; 21 base) ( properties sold) fell to 24bp in June 217, down from 44bp a year 11 3 earlier. The decrease is due to an improved 1 2 economic environment and proactive servicing by 1 2 lenders. 9 1 More Property Sales, Fewer Mortgages: 9 1 Research conducted by the Land Registry 8 showed that for 17% of property sales in 216, no 8 mortgage was registered in the days following the sale completion. Half of these transactions were related to second homes and/or buy-to-lets (BTL), Source: Statistics Nederlands (CBS) driving up owner-occupied home prices further. fitchratings.com 24 August 217
May Sep Jan 6 May 6 Jan 7 May 7 Sep 7 Jan 8 Sep 8 Jan 9 May 9 Sep 9 May 1 Sep 1 May 17 Apr Jul Oct Jan 6 Apr 6 Jul 6 Oct 6 Jan 7 Apr 7 Jul 7 Oct 7 Jan 8 Apr 8 Jul 8 Oct 8 Jan 9 Apr 9 Jul 9 Oct 9 Apr 1 Jul 1 Oct 1 Jul 11 Oct 11 Apr 12 Oct 12 Apr 13 Jul 13 Apr 14 Jul 14 Oct 14 Apr 1 Jul 1 Oct 1 Jul 16 Oct 16 Apr 17 Downward Arrears Trajectory Continues Arrears Recent Developments One-month plus arrears Two-months plus arrears Three-months plus arrears 1.8 1.6 1.4 1.2 1..8.6.4.2. Early-Stage Arrears One-to-two months arrears.9.8.7.6..4.3.2.1. Late-stage arrears have improved substantially over recent years, across most loan origination vintages. As of 1H17, three-months plus (3M+) arrears stood at 24bp of the current RMBS portfolio balance, down from 44bp a year earlier. The overall figure is supported by the addition of recently closed transactions, but slightly falling arrears are also evident across older transactions. The volume of loans in arrears by between one and two months in June 217 was 18bp, compared to 2bp 12 months ago, suggesting the pipeline of new arrears cases has also slowed significantly. Rate resets in this low interest rate environment are reducing monthly mortgage payments, improving affordability and limiting the number of borrowers entering into distress. As Fitch reported in its previous Mortgage report, outstanding credit lines of over EUR2 (previously over EUR) are now reported to the BKR. Lenders use the records of borrower outgoings to set the maximum amount they will lend. About 1.2 million people are now registered at the BKR, an increase of two million people following the adoption of the new rules, of which 93% have a positive registration (all individuals with credit lines of over EUR2 are registered, even if they are meeting their obligations). The institute has made it harder to remove negative registrations, albeit there is no requirement for lenders to decline borrowers with such negative registrations. Long-Term Trends Arrears remain amongst the lowest in Europe in absolute terms, despite LTVs continuing to be among the highest. Lenders are increasingly using proactive servicing techniques to reduce the burden on borrowers in financial difficulties. Budget and work coaches may also be employed to help distressed borrowers. Fitch expects any reduction in the arrears rate to remain stable in the near term. Netherlands Mortgage Market 1H17 2
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q1 2Q1 3Q1 4Q1 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 Jul Oct Jan 6 Apr 6 Jul 6 Oct 6 Jan 7 Apr 7 Jul 7 Oct 7 Jan 8 Apr 8 Jul 8 Oct 8 Jan 9 Apr 9 Jul 9 Oct 9 Apr 1 Jul 1 Oct 1 Jul 11 Oct 11 Apr 12 Oct 12 Apr 13 Jul 13 Apr 14 Jul 14 Oct 14 Apr 1 Jul 1 Oct 1 Jul 16 Oct 16 Apr 17 Losses Down From Peak Over The Last Year RMBS Losses Realised losses (period).16.12.8.4. Average Claims and New NHG Mortgages Average loss amount paid out in EUR New NHG guaranteed mortgages 4, 4, 3, 3, 2, 2, 1, 1,, Source: WEW Recent Developments Annualised period losses in Dutch RMBS were over 1bp from 3Q14 to 2Q16, but have since reduced to below 1bp. The increase in period losses to 4Q1 was mainly driven by non-conforming transactions included in the overall index. Periodic losses in non-conforming transactions have been slightly above 1% of the outstanding principal balance during 1H17. The index however only consists of four nonconforming transactions (orginated in 27 and 28, thus also driving the loss indices for these vintages), with an aggregated outstanding balance just over EUR. billion. In 1H17, 1,177 borrowers made successful claims from the Stichting Waarborgfonds Eigen Woningen (WEW), reducing lenders losses by an average of EUR26,716 per borrower. This is substantially lower than the average EUR33,29 paid out in 216 and is attributable to increased home prices. Following this reasoning, Fitch expects fewer claims to be made in the near future, as instances of negative equity become less frequent. The total number of NHG-backed mortgages taken out in 1H17 increased yoy by 2.1%, whilst the total number of property sales has soared by 22.6% over the same period. Home price growth in the more prosperous Dutch regions beyond the NHG threshold, in combination with properties purchased without mortgages are driving the gap between property sales and new NHG-mortgage originations. Long-Term Trends The overall level of mortgage losses in the Netherlands was negligible prior to 28, as the performance of loans in the portfolios remained strong and home prices rose. Consumer confidence and the housing market deteriorated after the financial crisis. As home prices declined, loss recognition became more common across portfolios. In 214, the Dutch housing market started to recover, leading to a stabilisation of losses across portfolios. Fitch believes the home price recovery will persist in the near future and therefore expects period losses to fall further, as the number of forced sales decreases. Netherlands Mortgage Market 1H17 3
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q1 2Q1 3Q1 4Q1 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 Number of Auctions Remain Stable Private Sales Compared to Auctions Private sales (LHS) Mortgages registered (LHS) Auctions (RHS) 6,, 4, 3, 2, 1, 26 27 28 29 21 211 212 213 214 21 216 1H17 Source: Land registry New Dwellings Build and Properties Sold in the Netherlands New Dwellings (LHS) Number of property sales (LHS) Home price index (RHS) 7, 6,, 4, 3, 2, 1, 3, 2, 2, 1, 1, 11 1 1 9 9 8 8 Recent Developments From 212, home purchases have been increasingly financed with sources other than a mortgage, driven by the low interest rates on saving deposits and tax exemptions on gifts up to EUR1,. Given that demand is outpacing supply particularly in Amsterdam and Utrecht, buyers more frequently buy a home without resolutory conditions, for instance a finance clause, attached. Studies by the Land Registry showed that almost a quarter of property sales in Amsterdam are settled without a mortgage being taken out. The reintroduction of tax exemptions on gifts up to EUR1,, which were initially launched in 213/214, is expected to help buyers bring in more equity. The initial tax benefit in 213/214 led to gifts in total of EUR1 billion. As the tax exemption can only be used once, and requires relatives who are able and willing to provide financial support, it is hard to use a similar figure for the estimated impact for 217 and onwards. The Land Registry also found that of buyers who did not need a mortgage, approximately 2% were younger than 4 years old, after which they are no longer eligible for tax exemption. The number of property sales has outpaced new builds in the last few years. Whilst the share of new builds compared to the number of property sales accounted for more than % of the property sales in 213, new builds have declined to only 28% of total sales in 2Q17. The confidence in the housing market has strengthened significantly, however given the time it takes to complete the development of a new building, the number of new build sales is likely to lag behind the sale of existing properties. Long-Term Trends Fitch expects private sales to remain the more attractive recovery route, as the price discount on auction sales is demonstrably higher than for private sales. Higher demand for housing will help maintain market liquidity and should lead to a decrease in the average time required to sell a property. Fitch expects the market to remain buoyant and liquid. Source: Statistics Nederlands (CBS) and Land registry Netherlands Mortgage Market 1H17 4
1Q3 2Q3 3Q3 4Q3 1Q4 2Q4 3Q4 4Q4 1Q 2Q 3Q 4Q 1Q6 2Q6 3Q6 4Q6 1Q7 2Q7 3Q7 4Q7 1Q8 2Q8 3Q8 4Q8 1Q9 2Q9 3Q9 4Q9 1Q1 2Q1 3Q1 4Q1 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q1 2Q1 3Q1 4Q1 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 May Sep Jan 6 May 6 Jan 7 May 7 Sep 7 Jan 8 Sep 8 Jan 9 May 9 Sep 9 May 1 Sep 1 May 17 Prepayments Expected to Increase RMBS Payment Rates Recent Developments Constant prepayment rate (CPR) Principal payment rate (PPR) Borrower payment rate (BPR) 2 1 1 Weighted Average Mortgage Rates and Gross New Loan Balances 6 4 3 2 1 Source: DNB Gross new mortgage loans (RHS) Mortgage rates - existing (LHS) Mortgage rates - new (LHS) (EURm) 4, 3, 3, 2, 2, 1, 1,, Prepayment rates increased during 216, triggered by increased property turnover and greater competition amongst lenders. Borrowers are now able to access lower interest rates without prepayment penalties when selling one property to buy another. Many of the mortgages originated in the housing market boom before the crisis will soon reach an interest rate reset date and are likely to be refinanced, pushing up prepayment rates in the near future. As the yield on saving deposits has remained low for an extended period, borrowers that locked in a higher rate in the past, also have a bigger incentive to prepay (part) of their mortgage. Further pressure on mortgage rates is coming from new lenders, such as pension funds and insurance companies, which are offering more competitive long-term fixed interest rate mortgages and portability product features, where borrowers are allowed to keep their mortgage terms and conditions upon moving home; such features may lead to a reduction in prepayments in the long term. Mortgage rates have been on a downward trend since mid-212, stabilising at 2.4%. The stabilisation and potential increase in the near term has been supported by recent comments from members of the Executive Board of the ECB, indicating the possibility of a less accommodating monetary policy in 218. The gross volume of new mortgage loans during 1H17 was EUR61.8 billion, up from EUR9.2 billion in the same period in 216. Fitch expects gross new lending volume to increase further, albeit at a slower pace, supported by attractive rates and stable affordability. Long-Term Trends Historically, prepayment rates in the Netherlands have been relatively stable. Constant prepayment rates were low and broadly flat at around % for six years from mid-29. The increased competitiveness of the mortgage market, tax exemptions on gifts up to EUR1, used to prepay a mortgage, and the improved macro-economic environment are expected to drive up the prepayment rate. Netherlands Mortgage Market 1H17
26 27 28 29 21 211 212 213 214 21 216 217f 218f 26 26 27 27 28 28 29 29 21 21 211 211 212 212 213 213 214 214 21 21 216 216 217f 217f Jun 98 Dec 98 Jun 99 Dec 99 Jun Dec Jun 1 Dec 1 Jun 2 Dec 2 Jun 3 Dec 3 Jun 4 Dec 4 Jun Dec Jun 6 Dec 6 Jun 7 Dec 7 Jun 8 Dec 8 Jun 9 Dec 9 Jun 1 Dec 1 Jun 11 Dec 11 Jun 12 Jun 13 Dec 13 Jun 14 Dec 14 Dec 1 Jun 16 Dec 16 Jun 17 Dec 17 Affordability Improved, Positive Economic Growth Affordability vs. Real Home Price Recent Developments CBS HPI (real, reb.) (LHS) Real disp. income (rebased) (LHS) HP to income ratio (RHS) According to Statistics Netherlands, home prices increased in 1H17 by 2 16 4.% since 2H16. Prices in the four major municipalities have increased much faster than the rest of the country, a result of greater 2 migration, supported by better job opportunities. The Amsterdam 12 housing market shows signs of overheating, as the number of property sales declined during 1H17 by 8.2% compared to the same period a 1 year ago, while home prices increased by 7.3%. On a yoy basis, the 8 number of property sales in the capital has now decreased for four 1 quarters in a row; the most recent two quarters are comparable in 4 terms of numbers with the first two quarters of 21. Also Utrecht (the municipality) has seen 3.7% yoy a decline in the number of properties sold in 2Q17. While the market in Amsterdam and Utrecht may be overheating, surprisingly the average LTV in the four biggest cities is slightly lower than that of the rest of the country, according to the DNB., CBS Real GDP Growth Actual/estimate 4 3 2 1-1 -2-3 -4 Source: Eurostat, Fitch Unemployment 16 14 12 1 8 6 4 2 Average Long-term (12m+) Source: Eurostat, Fitch Youth (<2 years) Very long-term (24m+) Fitch notes that the LTV cap of 1%, as per next year, and the reduced interest tax deductibility benefit, will impact borrowers ability to purchase a property. However, the NHG limit will be rebased at yearend, by taking the average house price into account; which will increase financing options in regions where home prices have not risen as quickly. Labour market dynamics are strong, with unemployment falling to.% in June, from 6.3% a year earlier. Wage growth nevertheless has remained moderate at close to 1.% and core inflation subdued, averaging.6% in 216. Long-Term Trends The housing market will continue to be supported by low mortgage rates, rising employment and real GDP growth. Affordability is expected to remain at current levels for the foreseeable future. Home price rises will also be supported by competition amongst lenders, seeking to maintain or increase their mortgage books. Fitch forecasts GDP growth of 2.2% in 217, moderating to 1.8% in 218, partly due to the impact of higher inflation on spending and as investment growth cools. Netherlands Mortgage Market 1H17 6
Jun Nov Apr 6 Feb 7 Jul 7 Dec 7 Oct 8 Mar 9 Aug 9 Jun 1 Nov 1 May Sep Jan 6 May 6 Jan 7 May 7 Sep 7 Jan 8 Sep 8 Jan 9 May 9 Sep 9 May 1 Sep 1 Jun Nov Apr 6 Feb 7 Jul 7 Dec 7 Oct 8 Mar 9 Aug 9 Jun 1 Nov 1 Jun Nov Apr 6 Feb 7 Jul 7 Dec 7 Oct 8 Mar 9 Aug 9 Jun 1 Nov 1 Dutch RMBS Performance by Vintage Three-Months Plus Arrears 27 28 29 21 211 212 213 214 One-to-Two Months Arrears 27 28 29 21 211 212 213 214 2. 1.8 1.6 1.4 1.2 1..8.6.4.2. 1..8.6.4.2. Period Loss 27 28 29 21 211 212 213 214.6..4.3.2.1 WA Interest Rate 27 28 29 21 211 212 213 214.. 4. 4. 3.. 3. Netherlands Mortgage Market 1H17 7
Jun Nov Apr 6 Feb 7 Jul 7 Dec 7 Oct 8 Mar 9 Aug 9 Jun 1 Nov 1 Jun Nov Apr 6 Feb 7 Jul 7 Dec 7 Oct 8 Mar 9 Aug 9 Jun 1 Nov 1 Jun Nov Apr 6 Feb 7 Jul 7 Dec 7 Oct 8 Mar 9 Aug 9 Jun 1 Nov 1 Jun Nov Apr 6 Feb 7 Jul 7 Dec 7 Oct 8 Mar 9 Aug 9 Jun 1 Nov 1 Dutch RMBS Performance by Vintage (cont.) Cumulative Loss 27 28 29 21 211 212 213 214 1.6 1.4 1.2 1..8.6.4.2. Net Excess Spread 27 28 29 21 211 212 213 214 1.7 1. 1.2 1..7..2. *Please note that if a transaction is redeemed, the line declines Constant Prepayment Rate 27 28 29 21 211 212 213 214 2 1 1 Principal Payment Rate 27 28 29 21 211 212 213 214 4 3 3 2 2 1 1 Netherlands Mortgage Market 1H17 8
Jun Nov Apr 6 Feb 7 Jul 7 Dec 7 Oct 8 Mar 9 Aug 9 Jun 1 Nov 1 Jan 6 May 6 Jan 7 May 7 Sep 7 Jan 8 Sep 8 Jan 9 May 9 Sep 9 May 1 Sep 1 Jun Nov Apr 6 Feb 7 Jul 7 Dec 7 Oct 8 Mar 9 Aug 9 Jun 1 Nov 1 Jun Nov Apr 6 Feb 7 Jul 7 Dec 7 Oct 8 Mar 9 Aug 9 Jun 1 Nov 1 Dutch RMBS Performance by Loan Type Three-Months Plus Arrears One-to-Two Months Arrears Non NHG (LHS) NHG (LHS) Non-conforming (RHS) Non NHG (LHS) NHG (LHS) Non-conforming (RHS) 1. 1 1.4 3..8 12 1.2 3. 1. 2..6 9.8 2..4 6.6 1..2 3.4.2 1..... Period Loss Non NHG (LHS) NHG (LHS) Non-conforming (RHS).2.2.1.1.. 2.6 2.3 2. 1.7 1.4 1.1.8..2 -.1 WA Interest Rate Non NHG (LHS) NHG (LHS).. 4. 4. 3. 3. Netherlands Mortgage Market 1H17 9
May Sep Jan 6 May 6 Jan 7 May 7 Sep 7 Jan 8 Sep 8 Jan 9 May 9 Sep 9 May 1 Sep 1 May 17 May Sep Jan 6 May 6 Jan 7 May 7 Sep 7 Jan 8 Sep 8 Jan 9 May 9 Sep 9 May 1 Sep 1 May 17 May Sep Jan 6 May 6 Jan 7 May 7 Sep 7 Jan 8 Sep 8 Jan 9 May 9 Sep 9 May 1 Sep 1 May Sep Jan 6 May 6 Jan 7 May 7 Sep 7 Jan 8 Sep 8 Jan 9 May 9 Sep 9 May 1 Sep 1 May 17 Dutch RMBS Performance by Loan Type (cont.) Cumulative Realised Loss Non NHG (LHS) NHG (LHS) Non-conforming (RHS).3.2.2.1.1. 7 6 4 3 2 1 Net Excess Spread Non NHG NHG Non-conforming 2. 1. 1... -. -1.. -1. *Please note that if a transaction is redeemed, the line declines Constant Prepayment Rate Non NHG NHG Non-conforming 4 4 3 3 2 2 1 1 Principal Payment Rate Non NHG NHG Non-conforming 2 2 1 1 Netherlands Mortgage Market 1H17 1
Jun Nov Apr 6 Feb 7 Jul 7 Dec 7 Oct 8 Mar 9 Aug 9 Jun 1 Nov 1 Jun Nov Apr 6 Feb 7 Jul 7 Dec 7 Oct 8 Mar 9 Aug 9 Jun 1 Nov 1 Jun Nov Apr 6 Feb 7 Jul 7 Dec 7 Oct 8 Mar 9 Aug 9 Jun 1 Nov 1 Jun Nov Apr 6 Feb 7 Jul 7 Dec 7 Oct 8 Mar 9 Aug 9 Jun 1 Nov 1 Dutch RMBS Performance by Originator Three-Months Plus Arrears de Volksbank N.V. CMIS Nederland B.V. 1.6 1.4 1.2 1..8.6.4.2. One-to-Two Months Arrears de Volksbank N.V. CMIS Nederland B.V..9.8.7.6..4.3.2.1. Period Loss.3 de Volksbank N.V. CMIS Nederland B.V. WA Interest Rate 6. CMIS Nederland B.V..3..2.2.1.1. 4. 4.. 3.. 3. Netherlands Mortgage Market 1H17 11
May Sep Jan 6 May 6 Jan 7 May 7 Sep 7 Jan 8 Sep 8 Jan 9 May 9 Sep 9 May 1 Sep 1 May 17 Jun Nov Apr 6 Feb 7 Jul 7 Dec 7 Oct 8 Mar 9 Aug 9 Jun 1 Nov 1 May Sep Jan 6 May 6 Jan 7 May 7 Sep 7 Jan 8 Sep 8 Jan 9 May 9 Sep 9 May 1 Sep 1 Jun Nov Apr 6 Feb 7 Jul 7 Dec 7 Oct 8 Mar 9 Aug 9 Jun 1 Nov 1 Dutch RMBS Performance by Originator (cont.) Cumulative Realised Loss CMIS Nederland B.V. de Volksbank N.V..9.8.7.6..4.3.2.1. Net Excess Spread de Volksbank N.V. CMIS Nederland B.V. 3.4 2.9 2.4 1.9 1.4.9.4 -.1 *Please note that if a transaction is redeemed, the line declines Constant Prepayment Rate de Volksbank N.V. 3 2 2 1 1 Principal Payment Rate de Volksbank N.V. CMIS Nederland B.V. 2 18 16 14 12 1 8 6 4 2 Netherlands Mortgage Market 1H17 12
Definitions Annualisation factor = 36 / ([current reporting date] [previous reporting date]) Arrears = [balance of loans in arrears] / [closing collateral balance] Borrower principal rate (BPR )= 1 - (1 - ([prepayments] + [scheduled repayments] - [redraws] - [further advances]) / ([opening collateral balance] + [prefunding balance])) ^ annualisation rate Constant prepayment rate (CPR) = 1 - (1 - ([prepayments] - [redraws]) / ([opening collateral balance] + [prefunding balance])) ^ annualisation rate Gross excess spread, including recoveries = 1- (1 - ([available funds] [opening reserve fund balance] [senior fees] [swap payments] [principal receipts] [note interest distributed]) / [opening collateral balance]) ^ annualisation factor Period realised losses = 1 - ( 1 - [realised losses] / [opening collateral balance]) ^ annualisation rate Realised Losses (Cumulative) = [realised losses since closing] / collateral balance since closing + new loans purchased since closing] Net excess spread = 1- (1 - ([available funds] [opening reserve fund balance] [senior fees] [swap payments] [principal distributed] [note interest distributed] ) / [opening collateral balance]) ^ annualisation factor Note: excess spread calculations may differ based on the transaction structure Principal payment rate (PPR) =1- (1 ([opening collateral balance] + [opening prefunding balance] [closing collateral balance] [closing prefunding balance]) / ([opening collateral balance] + [opening prefunding balance])) ^ annualisation factor Methodology The calculation methodology for all the indices included in this report is based on the following rules: Fitch-rated RMBS transactions are included in the index three months after their closing date. The index is calculated on a monthly basis. If a transaction reports less frequently, the reported value from the most recent reporting period is carried forward in periods where reporting is not available which might cause the index to change once the latest transaction reports have been included. No form of interpolation is applied. Data available up to 31 July 217 has been included in the indices The contributory values of individual transactions are weighted by their current collateral balance (including defaults) to arrive at the index except for cumulative performance measures where the original collateral balance is used instead. In Fitch comparisons the NHG label only contains transactions of which the total collateral balances benefits from the NHG-guarantee. Netherlands Mortgage Market 1H17 13
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