Dutch damned by homeowner debt [Reuters]

The euro zone crisis is washing over the walls of one of the region’s safest havens.

So far the Netherlands, a founding member of the European Union and fiscal hawk along with neighbouring Germany, has been spared the dramatic collapse of property prices associated with southern European countries such as Spain.

Housing prices have fallen roughly 15 percent since 2008, compared with up to 30 percent in Spain since the crisis began.

Now, though, four years after the global financial crisis first hit, the economy is on the brink of another recession. And steadily sinking property prices are exposing a deep Dutch weakness: unpaid mortgages.

The Dutch, who have been able to borrow up to 12 times their income to buy homes, are leveraged to the hilt. By some measures the Netherlands has the highest per capita mortgage debt in the European Union.

ING, one of the country’s largest lenders, forecast earlier this month that by next year, the debt on one in four mortgaged homes will exceed their value.

The Dutch expression is graphic – they say such homes are under water.

In the low-lying Netherlands, that’s evocative enough. The problem is also bigger than the economy. Collective Dutch mortgage debt rose from 140 billion euros in 1995 to 640 billion euros ($790 billion) last year – or from 46 percent to 105 percent of GDP.

On top of that, the central bank predicts economic growth in the seven years through 2014 will be the lowest since World War Two. The European Commission in May forecast the Dutch economy would shrink by almost one percent this year.

In July, Moody’s said it might downgrade its rating on Dutch government debt. “This dynamic creates additional fiscal headwinds and means that the Dutch government’s debt burden will begin to fall later and from a higher level,” it said.

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