The Dutch housing market remains unbalanced and the government should act to reduce the risk of home owners getting into financial difficulty, the International Monetary Fund says in a new report on the Dutch economy.

House prices in the Netherlands have fallen slightly over the past three months and this, combined with a wider economic crisis, could cause ‘distress’ for some households, the IMF said.

The organisation points out that around a quarter of mortgage holders face an interest rate reset in the coming five years. Interest rates have risen sharply this year, to around 4.5% for a 10 year fixed deal.

This means, the IMF said, some home owners are facing higher repayments for a property which is worth less than their mortgage.

In particular, the government should do more to warn home owners and lenders about the risk of interest-only mortgages, the IMF said.

The IMF has said for years that the Dutch housing market is a weak economic link because home owners have relatively high debts. In the Netherlands, buyers can borrow up to 100% of the value of the property if their income is sufficient.

Low risk

Despite the negative equity risks, the Financieele Dagblad said in an analysis of the latest housing market figures that the risk is ‘not large’.

If house prices fall 20%, no more than 8% of home owners will end up in negative equity, although these are more likely to be first time buyers, the paper said.

In 2014, at the height of the financial crisis, almost one third of Dutch home owners owed more on their mortgages than their property was worth, with average negative equity amounting to €61,000.

House prices hit a low in June 2013 but have recovered steadily until this year’s dip.