Rising prices: Municipalities running out of funds to help 1st-time buyers afford a home

Due to rising home prices, municipalities are running out of funds for “starter loans” - loans intended to help first-time homebuyers bridge the gap between the mortgage they can afford and the home they want to buy. Budgets have already been exhausted in several municipalities, Financieele Dagblad reported.

Due to rising home prices and higher interest rates, first-time buyers need to bring more of their own money to the table to buy a home. These starter loans from municipalities have therefore grown increasingly popular. The loan is interest-free and requires no repayment for the first three years. Currently, 282 out of the 342 Dutch municipalities offer this type of loan.

According to the SVn, the organization that facilitates these loans on behalf of the municipalities, 8,132 starter loans were provided last year, a 15 percent increase from the year before. The upward trend has continued this year.

It is unclear how many municipalities’ starter loan budgets have run dry, but it is the case for Den Helder, Amstelveen, Veendam, Bergen, Maastricht, Venlo, and Lelystad, FD wrote. Venlo, Maastricht, and Lelystad have since replenished their budgets.

Mortgage advisors report some “distressing” cases of having to turn first-time buyers away. When Den Helder suspended applications in August, mortgage advisor Jaap van Dijk and his colleague had to inform five first-time buyers that their loan wouldn’t work out. De Hypotheker also dealt with disappointed clients. “Some had to abandon their purchase,” Marjolein Kruit of De Hypotheker in Lelystad told the newspaper.

Economists have raised doubts about the need for these starter loans, according to FD. Housing market economist Matthijs Korevaar told the newspaper that there has been a positive correlation between the number of first-time buyers and home prices for years. “I understand the gesture, but the evidence that it actually works is extremely thin,” he said. “The primary reason prices are so high is that first-time buyers can put down large sums of money.”

A study by the Land Registry in 2023 concluded that starter loans do not drive up home prices, partly because the terms of the loan prohibit buyers from paying more than the property’s market value.