Royal Commission: Research shows Netherlands model for mortgages proven a complete failure

The Netherlands consumer-pays fee-for-service mortgage broking model recommended by Commissioner Hayne in the Banking Royal Commission has proved to be a huge failure for consumers in the Netherlands, since its introduction in 2008. The only winners are the big banks.

According to a 2017 report, entitled Banking in the Netherlands, obtained by one of Australia’s largest mortgage brokerages, Loan Market Group, the total number of banks in the Netherlands decreased from 99 banks in 2007 (when the market still operated on an upfront and commission model) to just 44 banks in 2017  (nine years after fee-for-service was introduced).

Mortgage broker commissions from lenders were completely banned in 2013, after being phased out from 2008.

The Statista report found the size of the banking sector as a whole in the Netherlands decreased by almost half. The total number of bank offices was approximately 3,400 in 2008. In 2016, this was less than 1,700.    

The report categorised the Dutch banking sector as “one of the most concentrated in Europe.”

Additionally, Moody’s Investment Services 2018 report found one of the biggest Netherland institutions, ABN Amro’s net interest margins have grown steadily since 2010. In comparison, the Australian marketplace net interest margins of major and regional banks have been on a steady decrease since brokers were introduced into the sector in the mid-1990s, according to the Reserve Bank of Australia.

Loan Market Group believes this set of data demonstrates a pronounced lack of competition in the Netherlands, significantly contracting the banking sector, with mortgage brokers no longer having the ability to introduce borrowers to numerous products offered by the smaller banks and lenders.

“This just further demonstrates the Netherlands model would be a terrible outcome for Aussies,” says Loan Market Group Executive Chairman Sam White.

“This model has resulted in fewer lenders and fewer options for Dutch consumers. I fail to see how this is the best option for our marketplace. The model that has been held up as the roadmap for the Australian mortgage market has been proven, by this research, to result in less competition and the highest concentration of big banks in Europe,” he continues.

“This means customers have less choice, pay more fees and will get stuck in a home loan because the cost of changing will be too much as they’ll need to fork out each time they want something changed.

“The only guarantee that will result from the Dutch model is that customers will pay more and will be locked into their loans,” says White.

Some of the key findings and insights from the Statista report include:

  • The Netherlands experienced a massive reduction in the number of lenders from 93 banks in 2008 (when fee-for-service began) to just 44 in 2017.
  • The top five big banks in the Netherlands (including ING, Rabobank and ABN Amro) now control 83.8% of the Netherland’s marketplace.
  • Total number of bank “offices” or branches fell from 3,421 to just 1,619 between 2008 and 2017.

“It is very clear the real reason the Big Four Banks in Australia are pushing for the Netherlands model. It will effectively kill off the competition coming from smaller lenders and banks and result in the banks having the lion’s share of the pie again,” says White.

“This is definitely not the best outcome for customers by any stretch. Not only do customers in the Netherlands have less choice than before the upfront payment was introduced, but they are also paying fees. Fees that Australians don’t currently pay,” he continues.

“It is astounding people have spoken about the Netherlands model with such enthusiasm when we were able to find this solid research very quickly and easily online. It would be nice to think the Commissioner and his team might have done more research than they have, before turning the mortgage industry on its head and recommending a financially detrimental solution for everyday Aussies who are looking for the best home loan solution,” he says.

“In addition to the reduction in competition, Australian consumers may soon have to pay a fee to get a mortgage. That may well be an option the first time they look for a loan, but it will also be payable if they want to refinance, or change their loan arrangement. Unless the savings are really compelling, switching won’t be worth their while financially, leaving them languishing with whatever product they already have,” says White.

“As in the Netherlands scenario, it feels very much like the banks are trying to reintroduce exit fees by stealth, making the idea of switching home loans deeply unpalatable to consumers.

He continues: “Some may suggest that the banks will reduce their fees accordingly, but what in the last 14-months of Royal Commission hearings would give anyone confidence that the banks do anything but look after their shareholders?”

Background to the mortgage industry in the Netherlands:

  • In 2008, the Netherlands Ministry of Finance slowly started changing the payable upfront and commission amounts. Starting with 80% and 20% spilt then to 70% and 30% and then to 50% and 50%.
  • In 2011 the regulator announced its attention to completely ban commissions by the end of 2012.
  • The ban on mortgage broker commissions came into place at the beginning of 2013.
  • Borrowers now pay a fee-for-service