Budget Day on 17 September 2013 will see the unveiling of the Dutch government’s plan to create a national mortgage bank, called the National Mortgage Institute (NHI).

After six months of negotiation with pension funds and insurance companies, the design of the newly established institute is in place.

The plan is to allow the NHI to take over tens of billions of mortgages from banks. Those billions would be bought by pension funds, as they start to invest more in Dutch residential mortgages.

The mortgages are guaranteed by the state, making them a far more attractive investment than mortgages in countries where banks foreclose on mortgages (take the house) where borrowers cannot pay their mortgage on time.

The plan is to open up mortgages in the Netherlands for large investors and ensure that foreign and Dutch banks have more "air" to provide mortgages, the ultimate strategy being that mortgages should fall.

The length of negotiations was partly due to the government’s desire to find a way of guaranteeing traded mortgages that does not make the state more vulnerable or obstruct the marketability of mortgages.

It should also make it easier for foreign banks to enter the Dutch mortgage market.

Plans for banking sector

This announcement comes after the government recently released a "banking vision paper" for the financial sector in the Netherlands.

Here, the government introduced its key policies designed to ensure a "robust, ethical and competitive" banking sector.

The key policies outlined by the government were:

A robust banking sector

With higher capital requirements, a better ratio between banks’ equity capital and total assets and banks cleaning up their balance sheets.

Effective supervision and more instruments

Including that banks writing "living wills" to direct action, such as splitting up, in the case of an emergency.

There will also make provisions to ensure that taxpayers will not have to foot the bill for bankrupt institutions, and push for the rapid introduction of a European banking union.

An open and diverse sector

With greater competition, including facilitating market access for new providers and alternative forms of financing such as credit unions and crowd funding.

An ethical banking sector

Where more people take the banker’s oath, the introduction and development of disciplinary rules and further restraint in remuneration policy, including a 20 per cent ceiling on bonuses.

A customer focus

With transparent financial products and a reduction of loan-to-ratio for mortgages to 100 per cent by 2018.

Finance minister Jeroen Dijsselbloem said it was vital that the banking sector functioned properly and takes fewer risks than before.

He said the paper was a broad approach that "will make the banking sector strong and stable again and help restore confidence in it."

For more information, check out our page on mortgages in the Netherlands.
 

Sources: Volkskrant, Government of the Netherlands