Despite a 3.5% rise in house prices in 2014, a tightening of maximum loan-to-income (LTI) ratios will contribute to dampening the recovery of larger properties and regional markets in the Netherlands, a credit negative for outstanding Dutch covered bonds, Moody’s said on Wednesday.

The rating agency cited a breakdown of house prices across the Netherlands published by Dutch real estate agents’ association Nederlandse Vereniging van Makelaars that revealed the 2014 increase in Dutch house prices, the first annual average increase since 2008, with house prices having fallen by approximately 20% to mid-2013.

Moody’s said it expects house prices to increase modestly in 2015, by up to 5%, supported by a continued gradual recovery of the Dutch economy.

However, a further reduction of the maximum loan-to-income (LTI) multiples will dampen the market’s recovery in 2015 and be a credit negative for covered bonds, Moody’s said, adding that previous measures are also expected to have an impact on the pace of the recovery.

The maximum mortgage lending amount is required by law to be based on an income-specific affordability ratio determined each year by the Dutch National Institute for Family Finance Information (NIBUD) and stressed interest rate for up to 10 year fixed rate loans, noted Moody’s, with an assumed 30 year annuity repayment profile.

Based on an interest rate of 5%, the affordability this year ranges from 27% (or 4.2x) for borrowers with gross incomes of Eu30,000 to 32% (4.9x) for high income earners. Based on an interest rate of 3.9%, the LTI multiple ranges from 4.3x to 5.2x.

“After a significant decline in affordability criteria between 2008 and 2014, mortgage loan underwriting criteria will further tighten in the Netherlands in 2015,” analysts at Moody’s said.

The maximum LTI multiples for middle-income borrowers of just above 4 times salary for this year are down from the 4.8x to 5.4x permissible in 2008. The maximum mortgage amount will also be reduced, by up to 7%, for high income earners and by up to 2% for middle-income earners – though the rating agency noted that those on higher incomes can often rely on additional assets and are therefore less dependent on maximum financing.

Moody’s also cited a fall by 1% a year to 2018 in the maximum loan-to-value (LTV) ratio from 103% to 100%, in line with mortgage legislation.

“As the typical ancillary purchase costs for first time buyers amounts to approximately 5%, this demographic will need to start using their savings for house purchases,” it said. “This situation will continue to limit any recovery in the Dutch housing market as low and middle income earners have found saving difficult in recent years.”