The legacy of interest-only mortgages: A microsimulation study of the Dutch mortgage portfolio

This thesis examines the risks associated with the large share of interest-only mortgages in the Dutch mortgage portfolio. Using a novel dataset on individual loan characteristics we build a microsimulation model that simulates the mortgage debt up to thirty years in the future. By doing so, we show that voluntary repayments contribute substantially to the repayment of interest-only mortgages and that common risk triggers appear to be favorably distributed across borrowers.
Furthermore, we estimate non-housing wealth for the simulated borrowers and show that most households will not have saved enough to fully repay the mortgage at maturity. Nevertheless, we find that home equity is likely to be positive for these borrowers, such that risks associated to the banking sector are limited. Results are presented for different house price scenarios.