Mortgage regulation as a quick fix for the financial crisis: standardised lending and risky borrowing in Canada and the Netherlands

Abstract

Although the role of the housing sector in the unfolding of the 2007-08 Global Financial Crisis has been studied extensively, the post-crisis nexus between housing and finance has not received equal attention. Grounded in a comparative case study between Canada and the Netherlands, this article adds situated knowledge from mortgage market professionals. It discusses the state interventions for regulating mortgage markets that were pursued by each national government during and after the crisis. Our analysis shows that in both cases state interventions contributed to restoring the investment value of mortgage products and failed to de-link housing from global speculative financial practices. Standardised lending regulations targeting the ‘average man’ were put in place. These contributed to further excluding non-prime households from mortgage markets, and drove them into risky practices, such as borrowing outside regulated markets. In addition, the new regulatory regimes forced households that retained access to mortgage markets to become highly leveraged and exposed to increased risks in future crises scenarios. We argue that the policies put in place as a response to the crisis in Canada and the Netherlands, ultimately led to a shift in risk-taking from lenders to current and prospective mortgage holders.