Dutch mortgage interest rate declines faster than savings rate

Savings and mortgage interest rates at banks have been on the decline for some time now. Over the past twelve months both rates have dropped, the saving rate by 30 base points and the mortgage rate by 60 base points. In May 2015, Dutch households received an average of 1.04% interest on their readily redeemable savings, while paying 2.83% on average on newly contracted mortgage loans. In comparison with April, the savings rate has dropped in May by 2 base points and the mortgage rate by 11 base points.

In May, Dutch households held some EUR 300 billion in readily redeemable savings, at an average interest rate of 1.04%. This savings interest rate has declined over the years, driven by factors including declining banks’ demand for funding, the still relatively large supply of savings and the relatively low cost of other types of funding on the money market. The interest on tied-up savings deposits, in which Dutch households hold approximately EUR 50 billion, also declined. The rate of interest paid on savings tied up in May was 1.88% on average. About sixty per cent of these savings were paid into time deposit accounts with a maturity of up to one year.

In May, Dutch households held some EUR 520 billion in mortgage loans from banks, paying an average interest rate of 4.16% on the amount outstanding. The rate of interest on outstanding mortgage loans also declined (over the last twelve months by 23 base points), but to a much lesser degree than the interest on readily redeemable savings. This is because households often fix the interest rate on their mortgages for a longer term.

Banks have also reduced the interest rate on new mortgage loans over the past two years, charging an average of 2.83% on mortgage loans newly contracted in May. This reduction has been somewhat stronger over the past twelve months than the decline of the saving rate. The difference between the rate of interest on readily redeemable savings and the rate of interest on new mortgage loans has been diminishing. The difference between these rates amounted in May to 180 base points.

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