Even with an extra loan, expensive tenants are not cheaper

This article was last updated on September 22, 2023

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Trial to Help Tenants Transition to Homeownership Falls Short due to Rising Mortgage Rates

The trial in which tenants can borrow extra money to switch to an owner-occupied home for the same monthly costs has ended. Due to rising mortgage interest rates, it is no longer cheaper for many expensive tenants to make the switch, even with a little help.

The Failed Experiment

Tenants sometimes pay around 1,200 euros per month on rent, but are unable to buy a house due to strict mortgage requirements. While with an owner-occupied home they would spend less money per month on housing costs.

In January 2022, the National Mortgage Guarantee (NHG), various mortgage providers, and the Owners’ Association (VEH) started a trial. The experiment allowed a thousand expensive renters to borrow extra to make the transition to owner-occupied housing. However, only seven special mortgages have been taken out.

The experiment was overtaken by reality. “The gap between an expensive rent and a mortgage became increasingly smaller in 2022,” says a VEH spokesperson. Mortgage interest rates have been historically low around 2 percent for some time, but will become twice as high in the course of 2022.

Meanwhile, rent increases were limited. House prices did fall somewhat, but not enough. Starter homes, in particular, have remained expensive because there is high demand and little supply. The trial was specifically aimed at starters, who, therefore, saw fewer and fewer opportunities.

Positive Outcomes

However, there were also positive outcomes from the experiment. Hundreds of tenants turned out not to need the test at all to buy a house. A poll by mortgage provider BLG Wonen showed that almost 40 percent qualified for a standard mortgage.

“Many people had underestimated themselves in the housing market,” says the VEH spokesperson. “They had previously only consulted a free online calculation tool, but they provide very rough estimates.” During a conversation with a real mortgage advisor, they discovered that they had many more financial options than they thought.

Carla Muters of the NHG thinks it is “a shame” that the pilot did not go as planned. “The fact that several hundred tenants realized that they can still finance a home because of this pilot is of course a great result.”

What helped is that wages have risen considerably. Two-income households, in particular, have a good chance of a higher income due to collective labor agreement wage increases. And they are also the ones who often want to switch from renting to buying.