We are convinced that the much more stringent credit criteria will temper prices. A recent DNB study shows that the credit conditions have a major impact on house prices. This study attributes no less than half of the price decline over the 2009-2012 period to tighter credit conditions. The development of the credit conditions therefore constitutes an important parameter for the way prices will move.
The substantial lowering of the LTI criteria therefore compels us to revise our price forecasts. Our original price forecast for 2015 was an increase of 2%, but we have now reduced this to 1%. Compared with the decrease in the maximum permitted mortgage based on the notional interest rate, this adjustment is actually quite moderate. The modest effect is related to the expected economic revival – because if the labour market improves, disposable incomes will also rise. Further factors are the sharply reduced mortgage rates and the growing confidence in the housing market.
We are also reducing our forecasts for the number of transactions. After previously forecasting 5% more transactions in 2015, we now expect a stabilisation. This, in itself, is not a bad result, given that the market is no longer being fuelled by the first-time buyer loan scheme and the expanded gift tax exemption. At best, there may be some additional second-step purchases following the earlier transactions facilitated by these schemes. The number of transactions, too, will be driven by the economic revival, the low interest rates and the renewed confidence.
The housing market will manage to consolidate the gains from 2014 in 2015, before returning to more normal conditions in 2016. Once the effects of the tighter mortgage criteria have become clear and the economy has settled into a firmer growth path, property prices and transaction volumes will make further advances. Our provisional estimate is a 2% price increase and a 10% rise in the number of transactions.
On balance, prices are still developing at a moderate pace, which means that the negative equity problem will not be solved for the time being. The gift tax exemption provides some respite, but will have less effect in 2015 than in 2014, because the government is revoking the temporary expansion of the scheme. One alternative could be to allow homeowners to dip into their pension savings to make extra mortgage repayments. The government is expected to publish the results of an exploratory study into this option towards the end of January. The initial indications are that this adjustment will be difficult to implement.