AMSTERDAM, 10/07/09 - Banks are trying to entice existing mortgage clients to switch their mortgages into a mortgage with a National Mortgage Guarantee (NHG). They are making use of the higher NHG ceiling, even though this was not intended for that, say a number of market experts.

To give the stagnant housing market an impetus, the cabinet raised the NHG ceiling from 265,000 to 350,000 euros on 1 July. This means many more house-buyers are eligible for the NHG. Under the scheme, the government pays the bank if the client can no longer pay; the government instead of the bank then becomes the creditor of the client.

It is not possible to roll over an ordinary mortgage into a NHG one just like that. But it is possible if a small renovation takes place in the home. Banks actively point out these options to home-owners with a current mortgage of up to 350,000 euros. The raising of the ceiling was however intended to lure first-time buyers into the market, as mortgage advice chain De Hypotheekshop explains.

According to WEW, the foundation that administers the NHG, raising the ceiling is not intended for "strategic use." Director Karel Schiffer: "We will closely monitor in the coming period whether there is a question of strategic use. If so, we will put a spanner in the works. Then, for example, a minimum requirement could be introduced for home improvement."

Banks need to hold lower buffer capital for NHG mortgages. These are becoming relatively cheaper and cheaper compared with ordinary mortgages. According to De Hypotheekshop, the interest rate on NHG loans is currently on average 0.53 percentage points lower than on ordinary mortgages, with the difference reaching 0.7 or 0.8 percentage points in some cases. Before the credit crisis, the difference was 0.2 to 0.4 percentage points.

VEH, the home-owners lobby association, is warning of all kinds of side-effects of rolling over mortgages into NGH loans. "There can be many extra costs. For example, you have to pay commission on the mortgage again, notary costs, and you may face penalty interest payments. So you need a substantial interest advantage before switching becomes lucrative," according to a spokesman.