Investing in Dutch mortgages
Dutch residential mortgages are an attractive asset class. They offer high returns and minimal credit risks. Direct investment in residential mortgages is part of a global disintermediation trend.Dutch residential mortgages represent an attractive asset class characterized by a high return and minimal credit risk. Direct investment in residential mortgages is part of the global disintermediation trend.
The role of banks and (institutional) investors is changing. Throughout the world, banks are retracting from the capital supply chain. This trend is called disintermediation. In the United States about 80% of capital flows directly from investors to those who need capital, only 20% touches the banks’ balance sheets. In Europe the percentages are still reversed, but investors can take advantage of changing tides through DMFCO’s proposition. Assets managed by DMFCO will exclusively result in direct investments in Dutch residential mortgages. Investors know exactly how their investments are employed. What you see is what you get.
Sustainable high margins
The Dutch residential mortgage market experiences a structural funding gap: the difference between net outstanding mortgage loans and net savings is over 350 billion euro. Banks are filling in this gap. However, capital market financing has become more difficult for Dutch banks since 2008. Large banks now openly aim for moderate levels of mortgage origination and new mortgage applications are being discouraged. Because of the funding gap and the changing role of banks, investing in mortgages will increasingly be a matter for (institutional) investors. The structural funding gap will provide a solid basis for a long term competitive return to investors.
Losses on Dutch mortgages are currently at a historically low level. This is due to the excellent payment morale, caused by a high level of social security in the Netherlands, and a legal system that is favourable to the lender. In addition, regulations for residential mortgage financing have been tightened. Since 2008, maximum debt to income ratio for households have been reduced significantly, underwriting criteria and product specifications have become stricter and redemption has been made mandatory for households who want to profit from tax deductions. Consumers also have the option to request an implicit government guarantee on their mortgage repayment, which gives lenders even more security. All these factors make up for a low (credit) risk for Dutch residential mortgages.