The Centraal Bureau voor de Statistiek (CBS) reports that in the first quarter of 2014, the net real disposable income of households in the Netherlands increased an average of 0,2 per cent compared to the first quarter of 2013.

This marks the first increase in household net income in two years. In the same period, household debt decreased by 2,4 billion euros, of which 1,8 billion was related to paying down outstanding mortgages.

Capital gains increase, wages stagnant

The net real disposable incomes of households is a measurement of disposable income adjusted for inflation and entails more than just the total salary of the household.

In addition to salaries, net real disposable income also takes into account government benefits, earnings from self-employment and capital gains. 

For the first quarter of 2014, the majority of the increase in household income can be attributed to capital gains, including dividends from stocks and interest payments from bonds.

Increased social benefits and income earned via self-employment were also significant factors while the change in real wages was in fact negligible.

This minor increase in purchasing power comes a bit earlier than De Nederlandsche Bank had predicted. Their original estimates expected that real disposable incomes would increase over the course of 2014, but not in the first quarter.

Less outstanding mortgage debt

Accompanying the moderate rise in households’ disposable income was a drop in the amount of total mortgage debt. For the sixth quarter in a row, the amount of outstanding mortgage debt has decreased.

There are a number of explanations outside of the increase in disposable income for this trend. One reason is that interest rates on savings accounts have remained extremely low, encouraging people to invest their savings in their home by paying-off mortgages. 

Additionally, two prior policy adjustments related to real estate financing are now showing their effects. 

Since October 1, 2013, up to 100.000 euros from a family member or third-party can be transferred tax-free if the money is put toward paying off a mortgage, purchasing a new home or investing in home renovations. 

Such a favourable transfer policy allows for a reallocation of resources between families and friends without financial penalty, thereby promoting lending and loan repayment.

In an attempt to further encourage homeowners to pay down their mortgages, the Dutch government also implemented changes to interest rate deductions. For any mortgage taken out after January 1, 2013, the homeowner can only deduct interest payments if the monthly balance is paid in full.

In addition to mortgages, the overall debt was further reduced through the repayment of nearly 0,6 billion euros related to consumer credit, including credit cards and personal loans.

Amount of Dutch debt still high

Although decreasing, the amount of household debt in the Netherlands remains relatively high when compared to the rest of the European Union.

One of the main contributors to the disproportionate amount of debt is rooted in the popularity of savings-based and hybrid mortgages in the past. Due to the entangled nature of these loan types with other financial instruments such as life insurance policies and investment accounts, it remains difficult to resolve these debts quickly.

In other European countries these options were either restricted or never available, making them less susceptible to complicated debt repayments after the real estate crisis.