The housing market in the Netherlands is a complete train-wreck for almost a decade. The climate crisis pressing down on the ability to build new houses, the negative interests rate and a flailing government makes matter consistently worse. In Q1 2021 the prices rose with almost 12% compared to previous year, and the prices are rising almost quicker and quicker by each month, with no clear end in sight.

Yes, the loan rates are on a historical low, but have been already for a few years now.

Trying to move back to the Netherlands, but I despair of ever trying to buy a house there. Half a million is not uncommon for the area I’m looking :/ and that’s in a tiny suburb half an hour from Amsterdam.

Like, salaries do not seem to have similarly risen, so who the hell is buying these houses?

Salaries don't need to raise when interest rates drop. For same payment with lower interest rates you can service much higher principal. For example at 1000€ month 5% rate you could loan 151 525€ but with 1% rate you could loan 217 441€...

True. The problem is that housing prices have risen by several hundred percent.

>Like, salaries do not seem to have similarly risen, so who the hell is buying these houses?

People and institutions looking for a way to 'park' their funds in a safe investment.

You can observe this (at least) in Germany right now. (Probably all over Europe, though.)

Interest on saving accounts is < 1%, loans are cheap, so everybody's trying to buy houses right now. House prices are rocketing up.

There will be lots of tears and people will lose their home once this starts to change and the fixed rates run out on some of those very cheap loans.

>and the fixed rates run out

I think I'm confused. I have zero experience with Germany, so please be graceful with what may be a stupid question.

So you're saying the super low rate is only for a set period of time, and will change at some point in the future, correct? If the rate is set to change at some point, you can't really call it a fixed rate, can you? I thought fixed rate meant that it was just that rate for the life of the loan. Hence, fixed versus variable.

What am I missing?

Most banks offer a fixed rate for an x number of years while you pay your mortage in 30 years.

The lower x is, the lower the interest you pay during those years.

For example, banks can offer the following loans: - 20 year fixed rate at 1.30% - 30 year fixed rate at 1.42%

So there is a possibility to gamble with the interest rates while still having a "fixed" rate.

I presume fixed rate on real estate loans. You take 25 year mortgage, while having first 10 years fixed because its so cheap. You as a buyer hope desperately super low interest rates will still remain after those 10 years. If not, many people will be royally screwed since their monthly payments can easily double/triple.

Ie in Switzerland with their specific mortgages, it can easily go from USD 800 to USD 8000 per month if things go south, with drop in prices matching this development.

The American system where you have a fixed rate for the entire length of the loan is an oddity worldwide, and largely created by post-WW2 housing policy. In most other countries all mortgages are variations on what we'd call ARMs in the U.S: you get a fixed rate for a certain term and then it resets periodically afterwards.

Here is Australia mortgages are typically for 30 years but it would be unusual to fix your mortgage for more than 5 years. Once you reach the end of your first fixed period you can re-fix at whatever the market rates are at the time.

You generally have the option of setting the fixed rate for a lesser period of time in exchange for a discount. At least that’s how it worked in Japan.

So

Floating rate: 0.7%

1 year fixed rate: 0.9%

5 year fixed rate: 1.2%

10 year fixed rate: 1.4%

35 year fixed rate: 1.6%

> If the rate is set to change at some point, you can't really call it a fixed rate, can you? Hence, fixed versus variable.

Fixed rate mortage has fixed percentage for an agreed period of time (fixation duration). Variable rate mortgage is based on current inter-bank market rate (or some other index), e.g. EURIBOR + X %.

The loans have fixed interest rates for 10 or 15 years. You refinance after. So the tears come with a delay.

How common fixed rates are? In Finland they are mostly 12 month Euribor(currently at -0.501%). Ofc you can buy "rate cap" type of service, but even those are limited length...

In Germany, you can get fixed rate mortgages from 10 to 15 years around 1% interest. It's fuelling a housing bubble of course.