Thursday, January 31, 2013

Dutch consumers shafted on mortgages? Say it ain't so

I've always thought it was clear that Dutch mortgage rates were being set artificially high due to overconcentration in the  banking sector: ABN, ING, and Rabobank dominate.

Exhibit "A" was friends I knew of _ with perfectly healthy finances _ having to pay around 6 percent interest rates for their mortgages while retail depositors were being offered 2 percent on their savings accounts. I figured, with a 4 percent margin, even I could run a profitable bank. And of course banks had the option to get funding even more cheaply than 2 percent from the ECB.

But amazingly, the Dutch antitrust regulator NMa did a study and concluded (my summary): "nothing to see here, move along." (Dutch language).
Key quote:
"A focused investigation into possible coordination did not deliver any evidence of price-fixing between mortgage brokers or other violations of antitrust law" -NMa, May 2011.

Anyhow, today, a Dutch politician, Stef Blok, has woken up and come to the realization that perhaps there is a problem here after all:

From the Volkskrant today:

"The mortgage market in the Netherlands is primarily the battleground of the big Dutch banks: ING, ABN Amro and Rabobank. But because the first two _ due to the crisis _ received state support, they were obliged to charge a higher mortgage rate than competitors who made it through the crisis without support. That was one of the conditions of Dutch state aid.  ING was released from this condition in November, but for a long time, the Rabobank could set rates by itself. So there could be no question of much competition, as minister Blok observed, and therefore the intererest rates are possibly higher than necessary."

The coffee, NMa. Wake up and smell it. Please.

The sad thing is that if all the consumers who are now * still * paying a percent or more too much interest on their mortgages were to successfully sue over this, what good would it do? Due to other financial woes, the banks are all undercapitalized to the point where probably none of them could survive having to give up this ill-gotten 1 percent advantage they have on a sizeable chunk of mortgages, much less pay back the years of income they've gotten from it.

And if they were forced to pay up, they'd go bankrupt. And then, the state would have to intervene to bail the banks out and prevent armageddon; and a state bailout means taxpayers would foot the bill. Net result: a new subsidy from non-home-owners to homeowners.

Justice is hard to find in the banking world.

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Explainer

I use this space as a brain dump, almost a note pad.
Lots of English translations of Dutch information, especially if I think something could also be useful for others. For speed I start with Google translate and then put on finishing touches myself.
*Use at your own risk.*