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Will the Dutch mortgage boom revive its securitisation market?

28 July 2021

Arno Vink

Director, Capital Markets

Arno Vink

Director, Capital Markets

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The Dutch housing and mortgage markets have defied the pandemic downturn, offering attractive opportunities for investors

Dutch housing and mortgage markets have remained buoyant this year despite the severe economic impact of Covid-19, posting surprise growth of 8%.

There are several reasons for this. The government’s emergency package has helped protect jobs and support consumer confidence, which in turn has propped up a steady flow of mortgage transactions.

With the vaccine rollout gaining speed, consumer sentiment about The Netherlands’ general economic situation continues to improve. When asked by the government body Statistics Netherlands (CBS) about their financial situation for the next 12 months, consumers said their view had improved, making them more willing to make large purchases. A continuing housing shortage has also contributed to the growth.

Strict environmental regulations aimed at curbing nitrogen and carbon dioxide emissions have put a dampener on new building. In its January 2020 report, the Netherlands-based Economic Institute for Construction (EIB) predicted that construction projects would grind to a halt in 2020 and 2021, with new homes and infrastructure projects hit hardest.

All this means the mortgage market is awash with transactions,

As long as vaccines curb the spread of the virus and consumer confidence remains stable, I expect this growth to continue next year. Lack of housing supply is not a problem that will be solved within the next three years.

The housing market is also supported by the assumption that interest rates will remain low. The huge amount of money being funnelled into the European economy means there is currently a significant supply of funds, making borrowing cheaper.

Buy-to-let is buoyant in The Netherlands

The buy-to-let space is also growing in The Netherlands, among both professional and non-professional investors.

Dutch property can be expensive, particularly in larger cities, which makes renting – and buy-to-let investments – popular.

Professional investors are taking out mortgages on multiple properties to rent them out. But individual investors who may want a property to pass to their children are also entering the market. The rental income from buy-to-let compares favourably with savings accounts or bonds.

Securitisation transactions are growing

One effect of the buoyant buy-to-let market is an increasing number of public or private transactions with buy-to-let mortgages as a collateral. This means securitisation transactions could be an attractive alternative to government bonds.

Issuers are coming to the market to refinance their portfolios on favourable terms, helping to control funding costs.

Of course, such transactions carry more risk than owner-occupied, “plain-vanilla” residential mortgage portfolios. But they remain an attractive asset class, particularly as investors can mix different risk-return profiles. They can choose an AAA tranche – low margin with fewer risks – and add A or even BBB-rated bonds.

There’s also the option to pick a more liquid asset, because the bonds are usually listed and tradable. By investing in these bonds, investors will have a liquid investment with exposure to an illiquid asset.

A stable, regulated financial market

The Netherlands has always been a sophisticated environment for structured products. It is stable politically and has a sound financial services infrastructure. The legal framework is advanced, particularly after the recent introduction of securitisation regulation.

The EU-wide securitisation regulation, effective since January 1, 2019, has introduced a framework for simple, transparent and standardised (STS) securitisations.

Products with the STS label must meet strict criteria, but offer a number of investors a more favourable capital treatment on their investments. They also steer investors toward simpler structures – a trend that emerged after the 2008 financial crisis, which was triggered by lack of transparency and standardisation.

Intertrust Group in The Netherlands

We have seen growing interest in securitisation across different asset classes – not just residential mortgages or biotech, but also car and equipment leasing, for example. Most recently, we have assisted a credit card issuer in a transaction.

As a global service provider in the capital markets, we can take different roles in any transaction, acting as managers of special purpose vehicles, security trustees, cash managers and administrators. But we can also assist new issuers and asset classes – domestic or international – who are entering this exciting market and help them navigate its complexities.

How Intertrust Group can help in The Netherlands

  • Securitisation and structured finance services
  • Paying agency services
  • Security and data trustee services
  • Facility and security agent services
  • SPAC services