APG invests in mortgage loans from MUNT Hypotheken on behalf of its pension fund clients ABP, bpfBOUW and SPW. What does the pension investor expect from the mortgage market in the longer term? And how can this investment contribute to making Dutch homes more sustainable? We asked Kay Mennens, Senior Portfolio Manager Credits at APG.
The investment in independent mortgage provider MUNT Hypotheken involves some 1.75 billion euros. Nine of the ten biggest pension funds in the Netherlands now invest in MUNT Hypotheken. They do this through the platform of DMFCO, which serves as an independent asset manager of Dutch mortgages.
The housing market seems to be cooling off a bit in the Netherlands. Does the mortgage market still represent an attractive investment?
“Returns are still at a level that an investment like this is interesting enough for investors. However, fewer mortgages are expected to be taken out in the coming years. This is mainly because many homeowners refinanced their mortgage last year. The reason for this was that back then they could fix their loan at a low interest rate for a longer period of time. In addition, people can now take the interest rate and terms of their current mortgage with them when they move. That group is not likely to take out a new mortgage either. These developments do put some pressure on returns as competition increases. After all, the number of investors and the amount of money available remain the same, but the number of mortgages is decreasing. In recent years we saw that there is a lower limit for investors in terms of returns. If the return becomes too weak, some investors drop out, temporarily or otherwise, after which the return will pick up again. So I think the outlook is still positive, and we can achieve attractive returns over a longer period. Our goal is to earn 0.75 to 1 percent more than the risk-free rate.”
DMFCO’s chief executive looks forward to “using the ESG experiences of APG and its pension fund clients to further develop our mortgage business.” What are some examples of these experiences that DMFCO can work with?
“When we invested in Vista Mortgages in 2018, we were the first major investor on that platform, which gave us a firm foothold there. We said then that Vista’s mortgages should get a sustainable character. They then started a so-called ‘green discount’ five years ago. That means you get a discount on your mortgage interest if the home has an energy label A, or if you improve the energy label to A after purchase. That was then adopted by several other mortgage lenders. At the same time, there has been a much greater focus on helping clients make their homes more sustainable. This can be done with financing, but what you see much more often is that the problem lies with the fact that consumers are unfamiliar and inexperienced with this topic. What helps then is providing information and ensuring that the client gets in touch with a contractor. The latter can then clarify how much it costs to make a home more sustainable and what the benefits are.
Another learning point is that the period around the purchase of a house is not the best time to talk to the buyer about sustainability. Often the client already has enough on his mind and information about renovations for sustainability and its financing comes at an inconvenient time. Instead, we look at the possibility of maintaining contact with the client after the mortgage has been concluded. We do this in order to help the client as much as possible and remove possible barriers so that they will actually make their home more sustainable. A mortgage product provides the opportunity to talk to the consumer in a very direct way about sustainability. Mortgages do have a unique role in this, because with other investments you are dealing more with companies.”