Dynamic Credit, the fixed income asset management and direct lending firm, published its quarterly update on the Dutch residential mortgage market today, revealing that the 5- and 10- year fixed rate periods have shrunk in terms of market share and have now been overtaken by the longer 20- and 30- year fixed rate periods. Dynamic Credit says this is mainly due to pension funds and insurance companies playing a bigger role in the Dutch mortgage market and borrowers wanting to take advantage of the current low interest rate environment.
Jasper Koops, Portfolio Manager at Dynamic Credit: “Pension funds and insurers have the possibility to enter the Dutch mortgage market through Direct Lending firms. This has led to more competition in especially the long fixed rate period segments, ultimately leading to relatively more affordable mortgage loans for consumers.”
The report also shows Dutch housing price increases have picked up from last quarter, with a 2.7% QoQ increase (from 1.8% in Q2) and 9.2% YoY (from 8.8% YoY).
Additionally, the report highlights that spreads, on average, decreased by 16 bps during the quarter. This was mainly due to a steep increase in swap rates right before the end of the quarter. Following the end of the third quarter, rate changes were minimal in October, but swap rates decreased slightly thus improving spreads. However, spreads were still at a lower level at the end of October than they were at the end of 2018-Q2.
The report also characterizes today’s market in reference to the measures taken since the crisis to reduce risks in the Dutch housing market.Jasper Koops
10 years after Lehman Brothers
The report also characterizes today’s market in reference to the measures taken since the crisis to reduce risks in the Dutch housing market. Two of the changes that have had a significant impact on the Dutch mortgage market are set out below:
- Single Rate Policy In the past, many market participants would take advantage of the fact that borrowers, to a large extent, would accept whatever offer they are given at rate reset. Lenders would offer significantly higher rates at rate reset than they would offer to new borrowers. This was referred to as the “Loyal customer penalty”. Ultimately, the single rate policy was introduced which protects borrowers as lenders can’t discriminate in terms of what rates they offer a (potential) borrower with the same risk profile.
- Inducement prohibition Before 2013, it was common practice that intermediaries would receive commission for their advice. Some products would have higher fees than others, creating an incentive for advisors to recommend certain products over others. Often their interests were not aligned with that of the client. In 2013 commission fees were prohibited. As a result, lenders now need to compete on rates, product features and service as opposed to fees to the advisors, leading to better products for consumers.
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