Now that home prices are falling, homeowners may worry that more homes will soon be “under water” again, as happened during the credit crunch of 2008-2013.

A house is flooded when the outstanding mortgage amount is greater than the home’s value. When the house is sold, a residual debt remains.

If many houses are under water, this hinders the housing market. Owners are reluctant to buy another house if they know in advance that they will be in debt. But sometimes people have to sell their house, for example in the case of a divorce or unemployment.

Inhibits household spending

Households with a flooded home are also saving on their expenses. Because these homeowners are more likely to save money or make additional repayments on their mortgage to improve their “underwater” situation.

At the height of the credit crunch, 1.4 million homes were under water. Since then, that number has dropped significantly:

In recent years, every possible measure has been taken to prevent home values ​​from falling below the outstanding mortgage amount.

Top mortgages prohibited

For example, so-called top mortgages may no longer be granted. Before the credit crunch, a prospective buyer could get a mortgage for 120 percent of the value of the proposed home. This also included the buyer’s costs and often a little more money for a renovation, for example.

Since then, this has been reduced step by step and since 2018 a maximum of 100 percent of the home value can still be mortgaged. As a result, it is now much less likely that a situation will arise in which the mortgage is higher than the house value.

Interest-only mortgage prohibited

There was one other important measure. Because before 2011, interest rate mortgages were very common. This is a mortgage where there is no repayment, the homeowner only pays interest. So the debt stays the same.

Since 2011 it has only been possible to borrow up to half of the home value interest-free. And since 2013, homebuyers have had to. If you still want to get a mortgage interest deduction, choose a mortgage that pays off in 30 years.

Less fast underwater

Mortgages are therefore less expensive today compared to home values. And with automatic repayment, the mortgage gets deeper every year. As a result, fewer homes are now being flooded with falling house prices.

This is also evident from calculations by De Nederlandsche Bank. Because when house prices fell by around 20 percent from their peak in 2013, no less than 33 percent of all homes in the Netherlands were under water.

But if house prices fall 20 percent now, only 7.5 percent will be flooded:

“I think that this problem of being underwater can really only affect people who have just recently bought a house and borrowed as much as possible,” says Stefan Groot, real estate market economist at RaboResearch.

Also because real estate prices have risen sharply in recent years, by up to 20 percent annually. “So if you bought your house more than a year or two ago, house prices have to drop really big before they drop below what they were when they were bought,” says Groot.

“It was different in the crisis of 2007/2008. Before that, house prices were going up about 3 to 4 percent a year, so when prices started falling, it was easy to get under water,” says Groot.

NHG helps with remaining debts

Then there is the Government Mortgage Guarantee, which can help people with outstanding debt. Because this guarantee ensures that if a house has to be sold due to unemployment or divorce, for example, no residual debt remains with the seller.

NHG then pays the remaining debt to the mortgage lender. In practice, this has been rare in recent years due to the sharp rise in real estate prices.

There are approximately one million homes with an NHG mortgage. These are the cheaper houses, because the NHG can attract a buyer with a mortgage of up to 355,000 euros. It was announced this week that the cap will be €405,000 next year.

At its peak in 2014, around 4,300 homeowners had to be “rescued” by NHG, last year there were only 32:

In the first nine months of this year, NHG had to help someone with an outstanding debt just six times. Of course, this number could rise again if the current decline in property prices continues.

But the NHG also wants to focus more on avoiding residual debt in the coming period. “A forced sale is the last thing we want,” said a spokesman. “We will try to intervene earlier together with mortgage lenders if someone is having payment difficulties, for example by stopping payments or restructuring the loan.”