This article was written for the Securitisation event, which will take place on 21 and 22 april in Amsterdam. More than 300 participants come together to discuss game-changing developments in the securitisation market
The Netherlands is Europe’s second largest mortgage market estimated to be over €600 billion in 2015. But since the financial crisis, new mortgage originations and public RMBS securitisations in the Netherlands and, indeed right across Europe, have fallen in number due to tighter regulation and cheaper financing available through the European Central Bank and the Bank of England’s repo facilities.
Although the Netherlands experienced a period of price volatility in the housing market and reduced mortgage originations during 2008 – 2013, prices have started to move up as have originations of new loans. One consultancy calculated that 2015 saw €60bn of mortgage issuance, up from €49bn the previous year. However, fewer of these new originations are coming from traditional sources such as banks and insurance companies, but rather from mortgage funds known as “regiepartijen.”
These mortgage funds are financed by equity from external counterparties such as pension funds, insurance companies and other financial institutions. The equity is used to originate new loans through broker networks. Essentially, regiepartijen allow institutional investors to originate mortgages through a fund. Because they offer a higher yield than Dutch government bonds, they have proven to be extremely attractive to investors: the funds grew 81% in 2014, contributing to an overall growth of 0.6% to €748 of assets managed by Dutch investment funds. By mid-2015, the funds accounted for around 10% of Dutch mortgage origination. This growth embodies a broader, global drive for higher investment returns consistent with acceptable risk as record-low interest rates force pension funds and insurance companies to focus on asset classes that pay sufficient yield to offset long-term liabilities.
One key question is whether these funds represent a new form of securitisation or are they a clever arbitrage of capital usage to minimize the impact of Solvency II and Basle rules? After all, mortgage origination incurs a substantially lower regulatory burden than securitisation, which was cast, unfairly from a European perspective, as one of the villains of the 2007 financial crash.
The Netherlands is currently home to six or seven mortgage funds that are raising equity for new loan originations, one of the most well-known being Syntrus Achmea. The Achmea fund is particularly interesting as it is backed by an insurance company and therefore regulated under Solvency II.
The latest development is that the UK market, Europe’s largest for RMBS, seems to be waking up to the benefits of the Dutch model. Last May, London-based TwentyFour Asset Management launched a mortgage fund backed by equity from investors. The company’s trust, UK Mortgage Ltd, is targeting an annual return of 7–10% and was significantly oversubscribed at launch when it set out to raise £250m from investors. The trust acquires loan portfolios and may in the future utilise equity to fund originations – just like the Dutch model.
It seems the UK RMBS market has shown itself to be more than willing to learn from its Dutch counterpart, particularly as the returns from the new-style mortgage funds are kicking against the trend.
This article was written by Clayton Euro Risk
Geplaatst op: 10 maart 2016
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