Mortgage Update | Insights from Q2 2020 | Highest number of mortgages since 2008

By Banking, Mortgage Update, News

Mortgage revenue grows to new record of €38 billion, despite COVID-19 pandemic

Download the IG&H Mortgage Update (in dutch) 

Utrecht, August 6 2020 – Mortgage revenue during the second quarter of 2020 grows by 30% compared to the second quarter in 2019. The number of mortgages grows by 26% to 114 thousand. This is the highest number of mortgages since 2008. The numbers rose among all groups, but people taking out refinancing and additional loans showed the strongest growth. Their numbers rose by 64% compared to the second quarter in 2019. For the first time, the number of mortgages for people refinancing and taking out additional loans exceeds the number of mortgages for new homeowners and transferors.

“The COVID-19 pandemic is yet to negatively affected the Dutch mortgage market. We still see an increase in the number of mortgages for new homeowners and existing homeowners who transfer to a new home. The large increase in the number of mortgages for people refinancing and taking out additional loans shows that the pandemic even seems to have a temporary positive effect on the market” according to Joppe Smit of management consulting firm IG&H.

The average mortgage value continues to grow for new homeowners and transferors (+0,9%). For people taking out refinancing and additional loans, the average mortgage value decreases by 2,8% compared to the previous quarter. Collectively, this explains the decrease of the average mortgage value by 1,3% to €333.000.

People refinancing and taking out additional loans cause strongest growth in 5 years
Mortgage revenue of people refinancing and taking out additional loans grows by 64% in the second quarter of 2020 compared to the same quarter in 2019. Their mortgage revenue of €15 billion encloses 40% of the total market revenue. The number of mortgages grows as well by 64%. This is the strongest growth in 5 years for both revenue and numbers. “It seems that many people take the time to refinance, possibly in anticipation of an increase in interest, or to take out additional loans for renovation during this pandemic. That clearly has a positive effect on the Dutch mortgage market” according to Smit.

Market share Top 3 banks drops to an historical low
The market share of the top-3 banks has decreased to 45,6% this quarter. This decrease by -2,3 percentage points compared to the previous quarter brings their market share to the lowest level since the start of our measurements in 2006. Banks experience the strongest decrease of their market share among people refinancing and taking out additional loans

(-5,8 percentage points). ING experiences the strongest decrease for two consecutive quarters.

Over 4,950 advisors have passed the course for advisors in sustainable housing
Since last quarter, IG&H reports on the progress of industry collective Duurzaam Wonen. They are getting closer to achieving their aim to educate at least 80% of all mortgage advisors in sustainability by the end of 2020. To date, 5,980 advisors have applied, an increase of 21% compared to last quarter. This implies that 60% of all mortgage advisors have now applied.

We wish you great joy in reading this article and would like to invite you to respond!

Joppe Smit,
Director bij IG&H
E: joppe.smit@igh.com
T: 06 2035 2438

Author & data-analysis IG&H mortgage update
Annelies van Putten-Stemfoort (annelies.vanputten@igh.com)

Subscribe to IG&H’s Mortgage Update

Digitalisation can radically change the debt assistance and administration into a more people-oriented approach

By Banking, News

All signals are on red in the debt sector[1]. The sector is all about people in often difficult situations. More than 2,5 million Dutch households suffer from late payments[2]. About half of those households have structural debt problems. Due to the impact of COVID-19, the number of indebted households is predicted to increase significantly[3]. With digitalisation the more important focus in the debt market is inevitable. Preventing people to obtain income on alternative matters. More cost-efficient administration and focus on the root cause of debt, the household in debt. Digitalisation of the financial administration processes can let the sector undergo a metamorphosis into a person-oriented approach. The ingredients are there.

Social impact and growth potential of the sector
The impact of debt is considerable: for the debtor, creditors, and society at large. The Dutch government wants more people to get out of a hopeless debt situation and gives high priority to this[4]. A rough estimation is that the debt sector in the Netherlands costs the society € 11 billion a year (BKR, 2014)[5].

Figure 1 – Debt assistance decreases while administration by court increases significantly, the market potential is huge. 2020 and 2021 estimated avg. by Deloitte (June 2020)

What is remarkable about the sector figures is a significant increase in the number of administrations compared to debt assistance, which puts considerable extra pressure on the legal system.  Households with debts need the right support. Getting the right support is not easy according the National Ombudsman[6]. It takes an average of eleven days to get in contact with the municipality. The intake asks a lot of trust from people with debts, to share all information and their terse situation. Social and culture believes can make the step towards asking for help even harder.
The causes of debts are a combination of factors and in most times multicomplex circumstances:

  1. Environmental factors (economic situation, complexity of society, structural poverty).
  2. Conscious and unconscious behaviour (motivation, financial knowledge, and skills, but also a feeling: doing what others are doing and unconscious psychological processes).
  3. Unexpected events (life-events such as divorce, unemployment, disability, bankruptcy, etc.).
  4. Personal factors (addictions, mild intellectual disability, psychiatric problems).

What strikes is that the root causes of debt are all social economical and psychological. The current debt assistance and administration is mainly focussing on the financial administration to get control on the settlement and prevention of debt.

Sector growth demands digitalisation to get focus on personal debt causes
Working in the current debt administration sector is tough work. The work mostly consists of mail handling, communication, and financial administration. All this to relieve the ones with debts or to handle their financial administration. Until the debts are settled, someone is tied to the debt relief, and a calculated amount of income to live on each week (VTLB in Dutch). On a high level, debt assistance is characterized by three different phases:

The sector and government create great initiatives to innovate this process. Most innovations are focussed on the exchange of data, such as the data hub of the ‘Dutch association for debt assistance (NVVK)’. For municipalities and private debt assistors, digitalisation of internal processes is more vital than ever. Not only to integrate all data and to handle the foreseen increase of demand, if not to reduce throughput times for clients, improve customer service and reduce operational costs tremendously.

The experience of IG&H in the sector is that a return on investment of less than a year is many times possible. Combining sector initiatives and the current possibilities of technology can change debt assistance significantly. Based on IG&H experiences the intake of the debt process can be up to more than 60% more efficient due the several sector initiatives. A more efficient administrational intake process results in more time to understand the cause and situation of the household in debt.
Examples for the intake part of the process are:

  • The law entry of debt assistance and data exchange, which is going into force on January 1st, 2021, will give debt controllers access to all necessary personal data. Making the intake a lot easier for people in debt and will increase data quality and security. Technology to connect is highly mature technology, on the government side as well on the commercial side with solutions as the ‘Makelaarsuite’ of PinkRoccade Local Government.
  • With PSD2 and solutions as Budlr, Ockto and Buddy Payments the setup of a budget plan and allocating the financial administration can be digitised and set up automatically.
  • Early signalling of debt is trending and as of January 1st, 2021 a duty of municipalities by law. The ‘Dutch association for debt assistance, social banking, and administration (NVVK)’ developed a debt hub to exchange debt data of households. The hub has great potential to have insight into debts and to reach mutual agreements, restructuring or prioritisation.
  • CDD (Customer Due Diligence) or KYC (Know Your Customer) in the debt sector is not as mature as in the banking sector who invest fully in this lately. Aligning with banks in this process to allocated accounts faster and more secure, the improvement can be made on both sides making the client process more trustful. Digital identification and fraud prevention solutions as Slimmer.ai, Hawk.ai, hellosoda.com, and IDNow.io can improve this process easily. The above-mentioned law entry makes the use of DigiD and eID for highly reliable identification an even better solution. Digital identification is the essential start for data interaction.

The main part of the debt process can be much more efficient and as much automated with the following examples. Resulting in a game changer of the debt sector with a focus to coach and support clients on the causes and making them more self-sufficient in their personal household finances.

  • The use of low coding increases the execution, adaptability, and deployment of the debt operation. Low code as OutSystems makes it possible to adapt quickly and have a release and multi-platform application ready in short release phases.
  • Chatbots and AI can support easily in customer contact for most common questions and intelligent dashboarding towards the debt counsellor and customer. Microsoft and OutSystems have mature configurable chatbots available and they are getting better each day.
  • The debt data hub of the NVVK can assist debt mediation and rescheduling, reducing postal mailings significantly.
  • The use of AI in postal mail recognition can relieve the operations work even more. Solutions as Anntac will recognise postal mails after scanning up to 90%.
  • Bank account batching for new accounts and API transaction data for instant payments make payments better and faster for all parties. Solutions as Cashfac with the Ebury bank are there already, filling the gap traditional banks lacks.
  • Most important is an intuitive app and portal for the customer in debt. With the use of AI and a task manager the process can be less complex and faster. Increasing self-sufficiency of the client which is mainly the most important goal of debt assistance.
  • Restructuring loans are trending. Especially with the low ECB-interest a great opportunity to lower and simplify the debt at once for all debtors and creditors for parties with a banking license or partnership with such a party. Last year the amount of restructuring loans increased with 16% to 8.952[7].

The outflow is most important for a sustainable financial future. The earlier mentioned reasons of debt are different. For a large group of households’ financial stability remains difficult. Monitoring and signalling support of AI, and in second phase personal coaching, can be the needed support.
There are several examples available to improve the last part of the debt process:

  • Financial insights are the base for self-sufficiency after the debts. AI and an easy UX makes the adoption and assist of clients very supportive.
  • The early signalling process will keep an eye on new debt risks and can be made into automatic insights and signals towards the client.
  • Financial coaching should be part of a portal and app for clients. Goal is to increase the financial capabilities and decrease any stress factor on finance. Preventing clients to return into the debt processes. There are a lot of solutions on this topic like mijnsofie.nl, samapp.nl and wijgaanhetfikksen.nl and can support clients very well.

Bringing the change together towards a people-oriented approach
It is only symptom control if the main part of the time within debt assistance and administration focusses on operation. There are multiple and easy to implement solutions to digitize the operation. Given that, the focus needs to be on a person-, and situation-oriented approach. The expertise of the debt assistants and administrators changes almost completely towards a people- and cause oriented expertise. In such the debt sector can be more tailormade, fitting in a multidisciplinary approach with different professionals suitable for the cause. Let us innovate and help people.

Contact
Gerwin woelders
E: gerwin.woelders@igh.com

[1] https://nos.nl/artikel/2333348-zorgen-over-oplopende-armoede-door-corona-alle-seinen-staan-op-rood.html
[2] https://www.nibud.nl/beroepsmatig/financiele-problemen/
[3] https://www.rijksoverheid.nl/documenten/kamerstukken/2020/06/08/beantwoording-kamervragen-over-oplopende-armoede-door-coronacrisis
[4] https://www.rijksoverheid.nl/binaries/rijksoverheid/documenten/kamerstukken/2018/05/23/kamerbrief-brede-schuldenaanpak/kamerbrief-brede-schuldenaanpak.pdf
[5] https://www.bkr.nl/home/zakelijk/nieuwsbrieven/nieuwsbrief-december-2014/schulden-kosten-jaarlijks-11-miljard/
[6] https://www.nationaleombudsman.nl/nieuws/2020/toegang-tot-wet-schuldsanering-is-een-hindernisbaan-zonder-finish
[7] https://jaarverslag.nvvk.eu/2019/toelichting-cijfers/index.html

Mortgage Update | Q1 – 2020 | Strong first quarter due to an increasing number of people taking out refinancing and additional loans

By Hypotheekupdate, Mortgage Update, News

Utrecht, 18 May 2020 – The number of mortgages during the first quarter of 2020 grows by 22.8% compared to the first quarter of 2019. Also, the average mortgage value has increased, which has led to an increase in mortgage revenue by 28.4%. This shows that the COVID-19 crisis has not negatively influenced the mortgage industry during the first quarter of 2020. 

Download the IG&H Mortgage Update (in dutch)

‘The strong growth is mainly driven by customers that are willing to refinance and take out additional loans. Additionally, we see that the average mortgage value continues to grow. Those two factors accelerate the total mortgage revenue growth.’ according to Joppe Smit of management consulting firm IG&H. The average mortgage value currently amounts to 337.000 euros, which means that it has increased by 2.8% compared to the 4th quarter of 2019. The average mortgage value continues to increase for all groups, but the strongest growth (+5.4% compared to Q4 2019) can be found among existing homeowners who transfer to a new home. This indicates that the Dutch mortgage market has not yet faced the inevitable downturn caused by the COVID-19 pandemic. 

The amount of people that refinance and take out additional loans continues to grow
The major share of mortgages is still taken out by existing homeowners transferring to new homes, but the people that refinance their mortgage or take out additional loans have almost caught up with the transferors. The group of transferors expands increasingly (+45.9% compared to Q4 2019), while the first group displays a lower level of growth (+10.0% compared to Q1 2019). This results in a growth rate of 22.8% compared to Q1 2019 for the entire market. “The accelerated growth in transfers could be a response to an increasing interest caused by the COVID-19 pandemic. This group wants to utilize this window of opportunity while it lasts.” according to Joppe Smit. 

Downward momentum continues for banks
Banks, and specifically the top-3 banks, have not yet been able to reverse the existing downward momentum in Q1 2020. Their market share has decreased for a second quarter in a row. This means that the top-3 banks have a cumulative market share of 47.9%, which is the lowest point since 2016. Investment funds that enable non-bank lending take advantage of the downward momentum of banks by accumulating a market share of 19.9%. Munt continues to have the highest growth and secures the 4th spot. ING and Florius experience the strongest decrease this quarter. The downward spiral that Florius is currently facing, has made them fall outside the top 10. 

Industry collective Duurzaam Wonen
IG&H is one of the supporting organisations that have recently launched the industry collective Duurzaam Wonen. More than 80 organisations have joined forces to foster awareness for sustainable housing among customers. To increase awarenessmortgage advisors will receive formal education on sustainability. The collective aims to educate at least 80% of the mortgage advisors in sustainability by the end of 2020For the first time, IG&H reports about the activities and progress of this collective and will continue doing so every quarter. To date, 4,900 advisors have applied and, of which, 3,100 have successfully completed this programme. This implies that an additional 3,000 advisors must complete this programme to meet the industry collective’s goal for 2020 (10,000 advisors in total). 

We wish you great joy in reading this article and would like to invite you to respond! 

Joppe Smit
Director at IG&H
E: joppe.smit@igh.com
T: 06 2035 2438

Authors & data-analysis IG&H mortgage update
Annelies Stemfoort (annelies.stemfoort@igh.com)Brenno Baas (brenno.baas@igh.com) 

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Corona and client activation: do you play to win, or not to lose?

By Banking, Hypotheekupdate, News

Crisis. The view is shifting from a health crisis with an intelligent ‘lockdown’ to an economic crisis ahead. The IMF claims that this crisis will be as bad as ‘The Great Depression’. Is this the right time for you as lender to innovate, generate client value and make impact in society? 

Impact on our societal and economic reality will remain present for a long time 
The ‘new way of working’ has also made its way to the mortgage market because of the corona crisis. Mortgage lenders and advisors have paid a lot of attention to their own ‘corona protocols’ and the creation of a safe work environment in accordance with RIVM’s guidelines these past months. While the occupancy rate on intensive cares is decreasing, people in the Netherlands are looking forward to the 1st of June to grab a beer at the terrace in the new 1,5-meter society. The virus will remain in our midst until the development of a vaccine or medication. Therefore, the impact on our societal and economic reality will continue to remain large.

Lenders risk credit losses and need to prove client value 
The size of the economic impact is still unsure, but the effects have already emerged in several fields. For instance, expenses for travelling and leisure related activities have decreased significantly these past two months. From a macro perspective, the Dutch economy is expected to shrink with 5% till 8% in 2020. This has a direct impact on jobs and therefore the securities that employees have accumulated.

Whereas the mortgage market was an important cause of the previous economic crisis, mortgage lenders now have the right resources at hand to help their clients in this health crisis. As a mortgage lender or advisor, you can prove your added value now by helping your clients with questions and problems they are facing. Above all, now is the time to identify, limit and/or prevent potential financial problems of clients.

Contacting the right clients is of utmost importance 
As the economic outlook darkens and corona guidelines remain, client situations may change. Part of the clients will remain unaffected by the corona crisis. Another part is likely to lose their job but will manage to find temporary employment or have accumulated sufficient money to continue mortgage repayments. Especially elderly have often saved more money, on which they can rely on in these difficult times. And a part will lose their job and must deal with payment difficulties because of their fixed costs. These people might work in the travel or hospitality industry, possibly hired on a self-employed basis. As a mortgage lender, you can prove your added value to these groups by facilitating contact proactively and reactively.

Belief that you achieve more when you differentiate and personalise contact 
The need for information and support for mortgage payments differs strongly, which is why it is important to get in touch with the right clients. In practice, we see that a combination of data insights and principles from behavioural economics are very effective for setting up a differentiated client contact approach. A way of working based on data also helps to generate controllable management information.

Which clients need support and how do you efficiently use your resources
You need to know which clients to approach. Clients in the group that faces payment difficulties, ask for a different approach than the group that still has the savings needed to fulfil their payment obligations. Identifying who you are talking to helps to bring across the right message. It also matters how successful you are in helping clients with mitigating measures. In this way, mortgage advisors and lenders can use their limited time efficiently by sending an aimed message to the right clients. An example of how to combine both is shown in figure 1.


Figure 1: Example segmentation with data driven insight for clients with payment difficulties

Use machine learning for identification of the right client communication
The clients with an urge for help and the highest chance of success are in the red area (figure 1). Machine learning techniques are very effective to identify the right clients, whether it is for clients with payment difficulties or to identify the chance of success when mitigating measures are applied.

Machine learning can use a combination of historical datasets and expert judgement to make an estimation. In this way, characteristics can be identified of clients with a risk for payment difficulties, combined with the success of mitigating measures and this can be plotted against your client portfolio. This is no absolute truth, but it does estimate chances better with a factor of 2 to 3 compared to estimations solely from experts. Subsequently, you can develop feedback loops to keep approaching the right clients with great accuracy and a personalised message that fits their needs and activates them.

Client activation: using insights from behavioural economics 
When the right clients are identified, activating them is the next important step. We can use principles from Behavioural Economics to achieve this. These principles are already successfully being implemented in several places, for instance by our prime minister in his corona speeches. Behavioural Economics uses our knowledge of human psyche to push us in the direction of a preferred action. When it comes to client activation for mitigating potential payment difficulties, there are numerous possibilities. Examples on how to convince clients to perform a certain action are offering a limited amount of options, the majority principle or the ‘profit-or-loss’ framework. The feedback loop and the above-mentioned machine learning algorithms help to gain continuously improving insights into which actions and techniques are most likely to be successful for specific clients.

Conclusion: taking control and generating client value to win 
As a mortgage lender, you can take control in these times, generate client value and avoid or limit payment difficulties. You can do this by using the techniques mentioned in this article, from both machine learning and behavioural economics. By approaching the right clients proactively about their potential problems, you stress your added value as mortgage lender or advisor and truly play to win.

Contact
Joppe Smit
Director at IG&H
E: joppe.smit@igh.com
T: 06 2035 2438

Read IG&H’s Mortgage Update | Q1 2020 (in dutch)

or

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Navigating through uncharted waters: from crisis management to forward-looking

By Banking, News

The big unknown of the corona crisis brings banks in uncharted waters. In order to weather the storm, banks need to make a shift from crisis measurements to a long-term solution. Although Dutch courts are hesitant to file unnecessary corona bankruptcies¹, the situation urges to make this shift quickly. Latest figures corroborate this urge, as they demonstrate that support already came too late for a rising number of companies. Despite crisis measurements, 2/3rd of the Dutch hospitality industry is now on the brink of bankruptcy².

This situation requires strong collaboration between entrepreneurs, banks and the government to find a solution that fits both the short- and long-term. In this article we describe how management can remain firmly at the helm, while navigating the bank into calmer waters.

Source: CBS, April 2020

Lessons from the financial crisis
The crisis of 2008 teaches us that having a forward-looking perspective will significantly increase the odds of a long-term survival. Research shows that just 9% of companies came roaring out of the last crisis³. Most companies battened down the hatches, while some continued to run a tight ship. Companies that dared to innovate, refrained from rigorous cost cutting and focused on efficient investments in their core business, jumped the curve and outperformed their peers after the crisis4  . Inspiring examples from last crisis are not only well-known tech start-ups (e.g. Adyen, Uber) but also traditional companies that were able to reinvent themselves (e.g. Lego, Domino’s Pizza).

Source: Gartner expo 2019, Barcelona

Although each crisis is unique, history shows that a forward-looking approach can be rewarding for every company.

Break away from crisis management, to focus on the future
While some companies are already adapting to the new 1.5m economy, most banks are still tangled up in crisis management. How can banks break away from crisis management and focus on the dot on the horizon?  In order to do this, fact-based decision making is paramount (see our previous article). This can be hindered by the fact that current forecasting models are not designed for these unprecedented times and are based on historical data.

At IG&H we notice that this uncertainty requires banks to accelerate their efforts to become more adaptive and data driven. Examples that we already see or you could think of are:

  • Next level digitalisation of key customer journeys as the new standard (e.g. digital signing of mortgage)
  • Introduction of continuous monitoring – providing both credit departments and entrepreneurs insight into their short-term liquidity need and longer term outlook (e.g. stress test app)
  • Call centre automation by use of AI and robot technology to reduce operational pressure
  • Data-driven lending – make application and review process for emergency loans data driven
  • Active use of dashboarding and Management Information to monitor large volumes of applications and keep track of progress
  • Strengthen financial restructuring activities to prevent clients from bankruptcy

Maintain your crisis execution power
A much-heard positive side effect of the crisis, is that a lot of companies have had a crash course in fast decision making and execution power – and found their true agility. The trick will be to maintain and nurture these new learned habits and embed these into your daily practice when social distancing restrictions will be lifted.

Start with data driven customer insights and learn by doing
No company can turn itself around overnight, but every company can learn by doing. For example, developing a data driven solution for emergency loans for SME (BMKB-regeling) could be the new blueprint for the long-desired digitalisation of all regular commercial lending processes. Data driven lending as a solution, not only to cope with Corona impact but also to control risk, improve NPS & sales and reduce costs after the crisis.

Because of the urgent need for survival for a substantial group of entrepreneurs, some parallels can be drawn with medical triage. Clients do need a quick fix, but only one that helps them for a long-term survival. To do so banks need to answer several difficult questions fast:

  • How can we determine which clients are in direct need and how to support them with forward looking perspective instead of a quick fix?
  • Which clients do not have a chance for survival?
  • How could we offer smart monitoring to our clients and what is the impact on operations, IT and client interaction?
  • What solutions would help clients to become financially more robust so that they can survive a double dip or any other setback?

By making the leap to becoming a more strategic partner in business for their clients, banks can be part of this long-term solution. And this might just be the key for banks to come roaring out of this crisis. By making their clients successful, banks become a true success themselves.

Contact
Bas de Jong
E: bas.dejong@igh.com

¹ FD, Rechters krijgen oproep om onnodige coronafaillisementen te voorkomen, April 2020
² Koninklijke Horeca Nederland, April 2020
³ Harvard Business Review, Roaring out of Recession, 2018
4  Gartner, Barcelona Expo, 2019

Become a true Data Driven Organization

By Banking, Data science, News

In Commercial Banking it is increasingly important that business processes are digital, data driven and can leverage AI. In the current times of unexpected change we see this magnified. IG&H data scientists observe that organizations who already transformed their processes now truly benefit.

Commercial banks are confronted with a sudden wave of SME client requests, changed risk drivers and changes in risk profiles. Banks want to help and need to figure out what (temporary) policy changes would be meaningful for clients. And also, what the impact of specific changes would be on the bank’s business.

Those who have already transformed their processes are now able to handle this situation much faster and more confidently. Their business processes are already more efficient and more consistent. And in the current time of crisis they also prove to be much more Scalable, Transparent, and Adaptable and they offer more options for looking forward in a smart way.

Scalable
Digital, data driven business processes with a high rate of straight-through-processing and where decisions are made (partly) by AI decision models, require much less human effort. Therefore, they can deal more easily with peaks in workload, especially in times when human capacity may be limited.

This benefit can only fully materialize when there are no bottlenecks in other parts with a crucial dependency. This stresses the fact that individual point solutions are not the way to go. The effective way is a transformation to become a true Data Driven Organization in People, Process, Data and Technology.

Transparent
Monitoring the impact of the current situation on the client experience, on process performance metrics and on KPIs is much more accurate and near real-time in a data driven process. This facilitates communication and coordination throughout the organization and allows management to take more effective actions.

For example: Dashboards can quickly be shared to observe what is really happening. Such as which teams have the highest workload increase. Or where clients’ payment behavior is most impacted.  Analytics can be used to signal early warning indicators such as trends and significant deviations.

Adaptable
AI decision models and business rules can be configured easily to effectuate policy changes like (temporary) higher risk thresholds, lowering the weight of specific risk drivers, higher or lower maximum values, etcetera.

For example: It can be easier to change a few parameters in a risk review decision model, than it is to communicate such changes to whole departments of specialists and coach them to quickly and consistently execute these.

Smart forward looking
Finally, AI decision models can be used to ‘test out’ different scenarios and evaluate very fast the likely effects on individual loans and on portfolio level.

For example: Changing the values of specific risk variables along the lines of different scenarios and observing the predicted effects, is being used to zoom in on those clients who likely require first attention.

AI models can be a very powerful tool to provide insight in likely future outcomes. A data scientist and business specialist who understand how the underlying machine learning works and on what data it was trained can provide a range of quick scan insights within a very short turnaround time.

IG&H’s data scientists and banking consultants continue to work with clients (especially now) to transform commercial banking organizations to remain competitive and benefit from being a true Data Driven Organization.

Would you like to talk about what you can do while your processes are not yet as digital and data driven as you would like? How you can best take the first step? Or how you can leverage your first progress and truly turn the corner to transform into a Data Driven organization? We are ready to help you explore and make data work! Just drop me a note!

Mando Rotman
Manager Data Science IG&H
E: mando.rotman@igh.com

Banking blog series | 2) Support measures: from promise to proof

By Banking, News

In this blog, we want to provide practical tips about ways in which banks can successfully fulfil their societal role during this corona crisis.  

Entrepreneurs are in acute need
As expected, the demand from SMEs for support measures offered by the government and payment holidays offered by banks is high. At the end of March, about 40.000 self-employed and thousands of entrepreneurs (bars, restaurants and retail) applied for these measures. This massive amount of applications will probably increase further due to the extension of the corona measures until April 28. Current estimates are that up to 85% of all SMEs need support by its bank.  This requires fast handling. Only then, entrepreneurs in need – due to their direct loss of income – can continue to fulfil their obligations, such as paying their rent. 

We see different approaches in the way banks offer these payment holidays to their clientsAs ABN AMRO chooses for opt-out, ING and Rabobank offer their clients opt-in arrangementsThis means that ABN AMRO automatically includes all clients, unless they state that they do not want to make use of this arrangementOn the contrary, clients of ING and Rabobank need to apply for these payment holidays themselves when they want to participate. Each approach impacts the client and organisation differently.  

This acute need of measures makes it necessary for banks to design their operational processes in such a way they can start processing these tens of thousands of applications. Furthermore, this requires close cooperation with other parties, like the government and RVO. In short: a massive operation! 

tips to fulfil your promise 
Our experience has taught us that it’s important to already think two or three steps ahead, while taking these direct support measures that are needed during this corona crisis. This is, among others, demonstrated during the current contribution of IG&H to the National Coordination Centre for Patient Evacuation (read more here) 

In this article we will focus on practical tips1) people first2) fact-based decision making3) forward looking 

1) People first
Peoples vitality really is the most important condition to keep the bank up and running and to engage non-stop with clients in acute need. Especially for them, the support of banks is of the utmost importance! We see that clients in Retail, Leisure and Transport sectors are in most desperate need of this supportThese clients will remember the way the bank stands with them during this crisis, for a long time. The enormous amount of applications requires a short-term disciplined approach using ‘command and control’ style to accelerate.

2) Fact-based decision making
In order to process the massive amount of applications in a short period of time, banks need to act fastUsing resources efficiently demands an approach based on data and facts instead of gut feelingCreating a smart, data-driven assessment process helps tanalyze customer needs and assess liquidity forecastsThis makes it possible to estimate risks and prioritize them, which speeds up the process. Also, clients classified as high risks for payment difficulties, can be contacted pro-actively. Moreover, data can help to detect fraud in the enormous pile of applications, even though you surely assume your clients act in accordance with their best intention during this crisis.   

3) Forward looking
During times of crisis, immediate action as well as forward looking to future-proof solutions is required. Banks can play an important role in supporting their clients to establish a sustainable business model that can withstand these kinds of shocksBanks can realize this by assisting clients with smart solutions, for example a stress test app, which provides clients with real-time insights in their liquidity position and financial resilience. This way, banks can build sustainable business models and a sustainable relationship with its client. An impactful promise fulfilled!  

If you want to know more about these practical tips, we are willing to think along with you! 

In our next blog we will discuss how to shift from crisis management to forward looking for when this crisis ends 

Joppe Smit
Director at IG&H
E: joppe.smit@igh.com T: +31620352438 

Authors:
Bas de Jong (bas.dejong@igh.com); Laura Hendriks (laura.hendriks@igh.com); Juliette Vernooij (juliette.vernooij@igh.com ; Annelies Stemfoort (annelies.stemfoort@igh.com 

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IG&H Mortgage Update | Insights from Q4 2019 and an annual review of 2019

By Banking, Mortgage Update, News

Utrecht, March 5, 2020 – New figures from Kadaster (The Netherlands’ Cadastre, Land Registry and Mapping Agency) show that growth in the mortgage market continued in the fourth quarter of 2019. This is mainly caused by the mortgage revenue increase among people taking out refinancing and additional loans. In the fourth quarter of 2019, the number of mortgages issued to this group grew by 26.1% compared to the preceding quarter. Over the whole of 2019, the mortgage market rose to a record high of €128 billion.

Download the Mortgage Update (in dutch)

“This surprisingly strong growth is caused by a rise in the number of mortgages as well as a mortgage loan increase,” says IG&H Consultancy’s Joppe Smit. In 2019, the average mortgage loan increased by 6.5%, reaching € 326,000 – its highest point since 2006. Compared to 2018, the number of mortgages increased by 13.4% to 392,000 mortgages taken out. This growth is mainly caused by an increase in the number of mortgages among people taking out refinancing and additional loans (+35.9% compared to 2018).

First-time homeowners lag behind
The mortgage revenue among first-time homeowners fell by 1.4% in the fourth quarter. Compared to the third quarter of 2019, the number of mortgages taken out by first-time homeowners fell by 3.2%. The average mortgage loan among first-time homeowners, however, increased by 1.9% to €276,000, while it dropped among existing homeowners and those taking out refinancing and additional loans. “The number of mortgages only fell among first-time homeowners, and the average mortgage loan only increased among the same group,” says Joppe Smit. “This illustrates the difficult position they’re in.”

The majority of those taking out a mortgage is still made up of existing homeowners – with a market share of nearly 46%. However, those taking out refinancing and additional loans come increasingly closer with a market share of nearly 36%. Compared to the third quarter of 2019, the number of mortgages taken out, in particular, rose significantly (+26.1%) among those taking out refinancing and additional loans. Among existing homeowners, growth is less significant (+6.9%) compared to the third quarter of 2019.

Growth of Aegon’s and Munt’s market shares
In the fourth quarter of 2019, banks lost a market share (-4.7 percentage points) among all groups of people taking out mortgages. Investment funds enabling non-bank lending benefited from this decline and grew their market share (+4 percentage points). “What’s notable is that the market share of the top 3 banks dropped to 48.9%, hitting the lowest level since 2016,” says Joppe Smit.

This quarter, there were several noteworthy shifts in the top 10 providers. Aegon and Munt moved up 3 spots, taking the 5th and 6th spot. MUNT Hypotheken increased by 2.2%, marking the highest increase in the market. As a result, it has strengthened its position in the top 10 of mortgage lenders. The biggest losers in the market were Florius (-1.9%) and Volksbank (-1.2%), which dropped to the 7th and 9th spots, respectively.

We hope you enjoy reading the Mortgage Update and welcome your response!

Sincerely,

Joppe Smit
Director at IG&H
E: joppe.smit@igh.com T: 0031 6 2035 2438

IG&H Mortgage Update
Authors & data analysis:
Annelies Stemfoort (annelies.stemfoort@igh.com), Brenno Baas (brenno.baas@igh.com)

Corrected Kadaster figures
Due to shortcomings in data provided previously, Kadaster corrected and then re-provided figures over the whole of 2019. The figures included in this Mortgage Update are based on the new figures. After consultation, we also corrected one mortgage lender’s production figures, as these didn’t include a significant part of the production – even after Kadaster’s correction.

 

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Will finding a dream house remain being just a dream for first-time homeowners?

By Banking, News

It has already been a month since a third major protest was held at the Malieveld. After the agricultural sector, the construction sector now calls for attention, too. Although the nitrogen problem has been known for a while, farmers and construction companies feel abandoned by politicians because they lack help with this inevitable change. And it is not only farmers and construction companies that feel the blow. In the short term, the impact of restrictions will also be felt across the housing market.

It fits the image of a housing policy that – in recent years – has sometimes caused more problems than it has solved. For years, several government agencies and private sector parties have worked at cross-purposes, insufficiently advancing towards a common goal together. With the current, favorable economic tailwinds, the time has come to jointly take targeted action – from national and local government to mortgage lender – and tackle the problems in the housing market.

The situation of Kees illustrates the state of today’s housing market. In 2005, Kees wanted to buy his first house in the city but decided to rent a place with his girlfriend instead, because purchasing a home turned out to be too expensive. Now, 14 years later, they are a young family with a middle income, and they still can’t afford to buy their own home due to rising house prices and the housing market shortage.

Every day, we read another great example of the upended housing market. A €1.5 million, simple terraced house in southern Amsterdam was sold within a week. For the first time, the interest for a rate fixation period of 30 years drops below 2%. One out of ten first-time homeowners now opt for ‘interest-only’ and prefer lowering their monthly costs by a few hundred euros over accruing, paying off, or benefiting from mortgage interest deduction. Or, various mortgage lenders decide to deduct credit spread for ‘interest-only,’ 12 months after the start of a major campaign aiming to encourage action on interest-only mortgages. For consumers, it’s all difficult to understand.

Fortunately, it was time for the 2019 opening of Parliament. There was an ambitious section on the housing policy for the coming year, in which the government tries to make up lost ground with a much-needed new set of plans. The proposed measures – from encouraging housing cooperatives, constructing temporary houses, and adjusting the transfer tax to setting up a separate building fund for the local preparation of construction sites – seem to make sense in terms of content. These plans are necessary to help people like Kees get their dream house in the long term.

However, it is striking that within the same government, plans don’t seem to have been aligned. For example, the Ministry of Agriculture has not taken action on the nitrogen crisis, which currently impedes 18,000 construction projects. And due to the new guidelines set by the Ministry of Housing, Spatial Planning, and the Environment, newly built houses will be 15% more expensive, while the average price of new houses is often too high already for less privileged home seekers.

If this trend continues, the consumer won’t stop footing the bill any time soon. This is also evident from the accelerated rise in the average mortgage loan (+3.4% compared to Q2, 2019) and the first-time homeowner’s average age compared to the previous quarter (+5 months, 31.8 years old – source: Kadaster). Therefore, people like Kees will have to keep their patience for a while.

In my opinion, better cooperation is essential to really tackle the issues in the housing market – cooperation between various government agencies, but also with market parties such as mortgage lenders. Cooperation that’s aimed at a solid long-term plan, which also provides short-term help to groups that struggle with getting help – and which includes smart solutions for financing housing and encouraging innovation in construction to achieve more sustainable and faster construction.

As Remkes wrote in his report: “Not everything is possible.” But I’m convinced that we can make the housing market a lot more accessible again – especially to people like Kees – if everyone in the sector cooperates well, if targeted choices are made, and if the policy is aligned.

Contact
Bas de Jong
E: bas.dejong@igh.com

2019 – Q3 | Mortgage market revival

By Banking, Mortgage Update, News

Utrecht, November 7, 2019 – The revival of the mortgage market results in the best third quarter since 2007. Mortgage revenue grows across the market by 15.1% compared to the previous quarter to €28 billion. This marks the market’s recovery from the shrinkage in the first six months of the year.

“The strong third quarter ensures the market comes close to the level of top year 2018 on an annual basis,” says Joppe Smit from consultancy firm IG&H. Revenue growth in the past quarter is caused by a rise in the number of mortgages as well as a mortgage loan increase. Compared to the second quarter, the number of mortgages increased by 12.8% to 85,000. The average mortgage loan rose to a new record high of €324,000.

Download the IG&H Mortgage Update (in dutch)

Growth among first-time homeowners
Remarkably, the number of mortgages among first-time homeowners also increased (+1.8%), while revenue even rose by 17.2% compared to the previous quarter. This is caused by a strong mortgage loan increase for first-time homeowners. “A possible explanation is that first-time homeowners are older, which means they can afford a higher mortgage loan,” says Smit.

Existing homeowners remain the largest group of those who take out a mortgage with a 46% share. Furthermore, those taking out refinancing and additional loans once again contribute significantly to the growth of the mortgage market (+ 16.5% compared to Q2). Therefore, this group continues to grow, which means it is increasingly important for mortgage lenders to focus on it.

Growth in market share of ABN AMRO and Florius
The market share of banks as a whole, as well as that of the Top 3 Bank Holding, grows at the expense of investment funds enabling non-bank lending. With a 65.9% market share, banks reach the highest market share since 2013, despite a shrinkage of ING and Rabobank. Determining factors for this growth are the increase in banks’ market share among those taking out refinancing and additional loans as well as the substantial growth of ABN AMRO and Florius in the past quarter. A possible explanation is that ABN AMRO has an above-average share of production in the growing group of those taking out refinancing and additional loans.

You can read more about these developments in the appendix, where you can also find the Mortgage Update. We hope you enjoy reading it and welcome your response!

Sincerely,

Joppe Smit
Director at IG&H
E: joppe.smit@igh.com T: 0031 6 2035 2438

IG&H Mortgage Update – authors & data analysis performers:
Niels Roelofs (niels.roelofs@igh.com); Annelies Stemfoort (annelies.stemfoort@igh.com)