Minister of Finance, Mr. De Jager, has replied to questions from the Lower House on the standards for the National Mortgage Guarantee (Nationale Hypotheek Garantie,"NHG") and the new Code of Conduct on Mortgage Financing (Gedragscode Hypothecaire Financieringen, "GHF"). This occurred after confusion had arisen on this issue. The difference between these standards raised the question which standards would be decisive when granting mortgages.
First and foremost, the Minister made clear that he regards both the terms and conditions and standards of the NHG and the new GHF as providing an appropriate interpretation of the open standard for responsible mortgage lending as laid down in the Financial Supervision Act. Mortgages can therefore be granted under both the GHF and NHG. To discourage excessive lending, both standards set an upper limit for mortgage lending.
The differences between the terms and conditions and standards of the NHG and the GHF are minimal. One difference is the maximum Loan-to-Value ratio ("LTV ratio"); the NHG standard is slightly less stringent. The LTV ratio's upper limit for mortgages taken out under the NHG is 108% on the basis of a real estate transfer tax of 2% (we refer to our earlier item on this issue). The upper limit for mortgages not taken out under the NHG is 106% according to GHF standards, on the basis of a real estate transfer tax of 2%. According to the Minister, an LTV ratio of 106% is generally sufficient to cover the costs payable by the buyer in the financing. Moreover, for renovations the actual increase in value can be included on top of the 6% in the financing.
The Minister also further noted that banks are free to adopt a lower percentage than the permitted maximum. However, the Dutch Authority for the Financial Markets will not sanction mortgage lending up to 108% on the basis of a real estate transfer tax of 2%, a NHG guarantee, and a sound file.