Investment in Dutch mortgages: a brief introductionInvestment in Dutch mortgages: a brief introduction

Investing in Dutch mortgages

Jasper Koops - Head of Portfolio ManagementJasper Koops1 December 2020 at 10:00

An investment in Dutch mortgages through the Dynamic Credit investment platform should be on the top of your list when looking for an investment with an attractive risk / return profile and long duration.

The unique Dutch mortgage market is well-known for its attractive spreads, low historical losses, and strong investor protection. We are happy to divulge our knowledge about this extraordinary market, and to present a way to start investing in this attractive asset class.

Firstly, let us introduce ourselves. Dynamic Credit is an experienced mortgage manager with a long track record of offering strong performance and stable returns against attractive fee levels. Since the inception of our investment platform in 2014, investors incurred less than 1 bps cumulative losses on more than € 10.5 billion of origination. The investment platform allows for a great deal of freedom in tailoring mortgage portfolios, and unique liquidity options.

Before we discuss investment in Dutch mortgages through our investment platform, we’ll briefly discuss the Dutch mortgage landscape.

An investment in Dutch mortgages grants attractive returns

The Dutch mortgage market has been known as an interesting market for institutional investors for quite some time now. There are a few factors that have influenced the creation of this investor-friendly market.

Below is a summary of what those factors are.

Dutch people tend to have relatively high mortgage debt versus GDP compared to other countries. On the other hand, Dutch people have a high savings rate, but generally tend not to put the money in the bank, unlike their German neighbors. Instead, a lot of Dutch savings are tied up in pension funds.

Only a small portion of those pension fund savings is used to fund mortgages. This leads to a mismatch between the growing demand for mortgage loans and a relatively low supply of funding in the market.

This explains the relatively high interest rates for Dutch mortgages versus neighboring countries, and thus an attractive expected return for investors due to the appealing spreads.

“The Dutch mortgage market has proven to be resilient in times of crises. At the core of this are very strong regulations and an efficient legal system.”

Jasper Koops, Head of Portfolio Management

How the risks of an investment in Dutch mortgages are mitigated

The Dutch mortgage market has proven to be resilient in times of crises. At the core of this are very strong regulations and an efficient legal system.

Strong investor protection

The Dutch are well-known for their strong payment morale. This is strengthened by affordability criteria set by the Dutch government resulting in a lack of competition by lenders on credit standards. This combination results in strong credit quality throughout the Dutch market.

In addition, consumers can apply for a mortgage with the benefit of a Dutch National Mortgage Guarantee (NHG). In essence, this is a Dutch government backed guarantee that covers up to 90% of the losses in case of a foreclosure. Almost a third of Dutch mortgages have the benefit of an NHG guarantee.

Should a borrower refuse to pay or is unable to do so, the Dutch legal system is highly efficient, allowing for a quick auction process without prior court approval. Furthermore, lenders have full recourse on all other borrower assets and can impose wage garnishing amongst other measures.

Prepayment risk is partially mitigated by imposing prepayment penalties on refinances during the fixed rate period, in case of rate decreases. Furthermore, borrowers are permitted by law to prepay at least 10% of their original balance without penalties per calendar year. No penalty is due in case of relocations.

Robust performance

Driven by these firm industry regulations and a strong borrower profile, the Dutch mortgage market proved to be very resilient during some of the largest financial crises of our time. Even during the Great Financial Crisis, Dutch prime RMBS losses peaked at roughly 0.14% in the worst year. In more recent years, effects on the Dutch market have been minimal with less than 1 bps cumulative losses in our portfolios.

The recent COVID pandemic hardly seemed to affect the Dutch mortgage, with few borrowers defaulting on their loans. Payment holidays granted to borrowers during the first COVID-19 wave early 2020 resulted in a mere 0.60% of the outstanding balance for Dutch RMBS in total and 0.11% for the portfolios managed by Dynamic Credit.

Dutch mortgage market

After a period of house price declines following the previous financial crisis, the Dutch House Price Index has shown steady increases for the last few years. This has been driven by stable economic growth, and relatively low interest rates and a shortage of housing. With a total amount of roughly € 720 billion in outstanding mortgages, the Dutch market is relatively large. And it is constantly moving, with 100+ billion in new mortgages being originated each year.

Dutch borrowers typically go for longer fixed rate periods (FRPs) of up to 30 years. Especially in the current low interest rate environment, more than half of all borrowers choose fixed interest rate periods of 15-30 years.

How to get started with an investment in Dutch mortgages

Dynamic Credit has been around since 2003, developing a deep expertise in understanding credit and building a solid track record as a mortgage manager.

With over € 10.5 billion of originated mortgages, Dynamic Credit is the largest of the mortgage managers in the Netherlands. We believe this is due to our strong proposition.

On the one hand, we have a deep understanding of the mortgage market. At the height of the Great Financial Crisis, we advised the Dutch State on the bail-out of ING Bank. Since then, we’ve received hundreds of mandates for transaction advice, valuations and advisory for both the buy- and sell-side of complex and illiquid investments.

Our market insights and reporting capabilities are considered to be the among the best in market.

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On the other hand, we have more than 5 years of experience as a direct lender. In 2015, we launched our own unique and scalable online mortgage origination platform: bijBouwe. This was the first online mortgage platform in the Netherlands. Since then, we have helped tens of thousands of people to a new mortgage, in a simpler, more efficient, and cost-effective mortgage process.

Investment scheme

Using our robust investment scheme, you can start an investment in Dutch mortgages by creating a tailor-made portfolio, choosing a mix of mortgage segments you desire to match your needs.

Even though all our investors are highly satisfied with the return on their portfolios, we offer unique liquidity options with multiple possible exit routes.

Get in touch

If you want to know more about our investment platform, our mortgage product and what we can do for you as an institutional investor, please reach out. We are happy to answer any questions you might have!

Disclaimer Dynamic Credit Partners Europe B.V. (‘Dynamic Credit’) is a registered investment company (beleggingsondernemingsvergunning) and a registered financial service provider (financieel dienstverlener) with the Dutch Authority for the Financial Markets (Stichting Autoriteit Financiële Markten). This presentation is intended for informational purposes only and is subject to change without any notice.The information provided is purely of an indicative nature and is not intended as an offer, investment advice, solicitation or recommendation for the purchase or sale of any security or financial instrument. Dynamic Credit may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented herein. Dynamic Credit cannot be held liable for the content of this presentation or any decision made by a third party on the basis of this presentation. Potential investors are advised to consult their independent investment and tax adviser before making an investment decision. An investment involves risks. The value of securities may fluctuate. Past returns are no guarantee for future returns.

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Jasper Koops - Head of Portfolio Management
Jasper Koops
Jasper Koops