Ageing, homeownership and mortgage choice in the Netherlands

This paper analyzes the development of homeownership and the demand for mortgage debt in the Netherlands in the Netherlands over the period 1981-2002. over this period a number of productinnovations occurred in the mortgage market and homeownership gradually increased, especially among the elderly. We use the life cycle model of consumption and saving as our main framework of analysis and derive clear predictions with respect to the appreciation of various newly developed mortgage types from a simple simulation version of the model. Empirical information from a number of housing surveys documents substantial changes in the marketshares of various mortgage types and their connection with mortgage interest deductibility. As earlier research for other countries suggests, we find that the life cycle model does a better job inexplaining tenure choice in the first part of the life cycle than in the last part. However, we find a surprisingly large demand and increasing for mortgage loans among the elderly and notice thatthis is focused on interest only mortgages. This suggests that elderly households are willing to consume at least part of their housing equity – as is suggested by the life cycle model, eventhough they are reluctant to move to another house.*