Housing finance: Yield hunters storm Dutch mortgage market

By:
Dominic O’Neill
Published on:

Banks off load loans as securitization stalls; start-ups and insurers compete.

From the second floor of an ordinary building in the Hague, Jeroen van Hessen oversees a two-year-old fund that is eating away at the near oligopoly of local banks. 

A former banker himself, his beaten-up trainers and straggly blue jeans give an impression of laid-back entrepreneurialism at what has become the fifth-biggest Dutch mortgage producer: perhaps hinting at the future of mortgage lending across Europe.

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Jeroen van Hessen

It is not only van Hessen’s Munt Hypotheken origination platform. Subsidiaries of insurance firms and smaller origination start-ups – helped by the common practice among borrowers of using mortgage brokers – have also taken more mortgages recently, backed by pension funds. They are more portents, perhaps, of how risks are shifting away from traditional lenders.

After launching in June 2015, Munt has already sold more than €4 billion of mortgages. This year, the fund’s total commitments are heading beyond €6 billion, after a further six local pension funds joined the three (Hoogovens, PGB and PMT) who put down an initial €1.6 billion in late 2014. By 2017 van Hessen hopes to reach €10 billion, after which he envisages bringing in another €10 billion from abroad, primarily European pensions and life insurers.

"We now have a strong track record of organizing a new lender in an efficient way and getting the mortgages investors are interested in," says van Hessen. 

He outsources mid- and back-office functions to a subsidiary of ABN Amro (Stater), while Intertrust manages the cash flow, so his firm – whose 21 employees get "normal salaries" – can focus on communicating performance and making sure service providers get the type of mortgages the pension funds want. 

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In van Hessen’s view, local pensions and foreign investors – rather than Dutch insurance money – will over the next few years take the market share that has been dropped by banks, especially in longer-dated loans. He thinks local insurers will remain stable at around 20% of origination, but local pension funds’ stated intentions of increasing allocation to mortgages to 5% of their holdings could see them double their mortgage book to around €60 billion. 


If foreigners took another €100 billion, van Hessen thinks local pensions and international funds could hold around a quarter of outstanding mortgages within 10 or 15 years. Funds like his could then have the job of explaining Dutch idiosyncrasies to foreign investors, like high loan-to-value ratios due to tax breaks on borrowing.

Solvency II

The big three banks are meanwhile shrinking their mortgage books ahead of regulations that could force them to put aside more capital for mortgages. At the same time, bankers say the securitization market is languishing, despite growth in new mortgage production, due to Solvency II rules bringing higher charges to triple-A-rated securitization investments. 

Others to have spotted an opportunity include Amsterdam-based alternatives fund manager Dynamic Credit. UK fund manager Venn Partners also launched a mortgage origination platform in March, Venn Hypotheken, targeting €2 billion in annual mortgage lending by end-2018. 

Having used the securitization market in 2014 to refinance a €500 million mortgage book purchased the previous year from GE, Venn Partners co-founder Gary McKenzie-Smith says securitization will help fund the new platform, but he expects insurance companies and pension funds to back the majority. 

"Regulation is affecting the supply of credit across Europe… but on the credit side the fundamentals [in Dutch mortgages] are strong, and funding is available," McKenzie-Smith tells Euromoney. 

But none of these funds is as big as the one run by van Hessen, who says his success is partly because Munt, unlike traditional lenders, automatically allows fixed-rate mortgage prepayment from borrowers’ savings, and automatically adjusts borrowers’ rates as they redeem. 

"We don’t do things very differently, but more transparently and more honestly," he says. "We don’t want to make money off less savvy consumers."

Banks, however, are not happy to lose the contact with clients that comes from originating mortgages: even if they want to off load the risk onto the same kinds of investors that the likes of Munt are targeting. 

"Pension funds are looking for yield, and mortgages could be part of the answer," says Marco Roddenhof, global head of capital markets at Rabobank.

Insurance companies have long distributed mortgages in the Netherlands, sometimes to cross-sell insurance. While they can put more money into longer-dated mortgages than banks, insurers are also opening mortgage funds to third parties, including pensions and international funds. 

Late last year, NN Bank, part of ING’s former insurance subsidiary, launched its Dutch Residential Mortgage Fund alongside NN’s asset management arm, NN Investment Partners, with a view to bring in NN IP’s institutional clients by selling an initial €165 million to the fund. "We think there’s interest from institutional investors in the NN mortgage product," says Kees van Kalveen, head of treasury at NN Bank. 

Aegon opened up its Dutch Mortgage Fund in 2013, citing likely demand from pensions; the fund had invested €5.5 billion at end-2015.

ABN Amro, ING and Rabobank remain the three biggest Dutch mortgage producers today, according to IG&H, a local consultancy. Post-crisis exits of foreign banks helped. 

Over the last year, however, in addition to Munt’s ascendance to fifth, NN and local insurer Achmea (whose asset management arm also taps pension funds) have surpassed Florius and Obvion: two top-10 mortgage originators, owned, respectively, by ABN Amro and Rabobank.