'We are the bridge between the institutional market that wants to invest in mortgages and consumers who are eager to secure a mortgage', state Jeroen van Hessen, Managing Partner, and Marieke Hut, Director of Business Development at the Dutch Mortgage Funding Company (DMFCO). 'The two need to be brought together. Our goal is to find the right balance.'
'We are actually two separate entities', says Van Hessen. 'DMFCO is an asset manager for pension funds wanting to invest in mortgages, while Munt Hypotheken, our "consumer label", provides mortgages.' This combination gives investors direct access to mortgages and, consequently, removes a step from the chain. 'It would not be efficient for individual pension funds to build the necessary infrastructure to provide and manage mortgages. We do that for them.'
Three years ago, it became clear to Van Hessen that banks and insurance companies, the traditional mortgage providers, had become less enthusiastic about providing mortgages. 'Mortgages used to be carriers for banks and insurers to sell additional products like a bank account or life insurance policy. That mortgage did not have to be profitable for the providers, as they could earn on the other products. That type of earning model is now outdated. Mortgage lending is increasingly seen as a separate service that needs to be sufficiently profitable.'
Although the demand for mortgages remained high, banks gradually withdraw from this business as their costs associated with mortgages have increased. DMFCO decided to respond to this development by offering parties the possibility to invest in Dutch residential mortgages via the DMFCO asset manager and Munt Hypotheken. It is this unique combination that enables us to offer the complete range of services to interested investors', says Hut.
Together with two funds by insurance companies, DMFCO now holds a market share of around 90% of this investment market. These investors together finance more than 15% of all new mortgages. 'Apparently, this fills a gap in the market. In the past, parties wanting to tap into investments with a good return, low risk and long maturities could only invest in government bonds. The fact that these yield little returns nowadays makes our products all the more interesting.'
The arrival of DMFCO and others, that are happy to provide mortgages has also had an effect on the competition. 'We entered the market with a bang and have noticed that this has made banks in particular a bit more alert. The market has become more competitive, which means that we have to stay sharp. Banks may have a market share of around 50%, but this is only two-thirds of their original share. And we expect that banks will wish to further reduce their mortgage exposure in the coming years. We’re here to help the banks withdraw orderly from the market.'
If the banks do indeed further withdraw from this market in the years to come, this will over time provide opportunities for foreign investors, says Van Hessen. 'There’s a lot of talk going on these days about foreign investors, but there isn’t much happening. It’s depending on the market developments if this will happen. If the market share of banks remains the same, the pension funds can finance the gap. If banks’ market share is reduced further, foreign parties might start to play a more prominent role. We are now focusing on Dutch pension funds because they are very enthusiastic and eager to grow further with us.'