“Investing in mortgages is still interesting”

Published on: 6 March 2023

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.”

Credit losses on mortgages over the past few years have been very low

It is difficult for many Dutch people, especially first-time buyers, to get a mortgage in 2023. This is partly because the conditions, such as a down payment, are a lot stricter than before. Can APG make a difference now that it invests in mortgages on behalf of its fund clients?
“Many of these conditions are set by law, so there is little APG can do to change that. Incidentally, strict regulation is one of the reasons why mortgage products do well in terms of risk. Credit losses on mortgages over the past few years have been very low. And not only in recent years when the economy was doing well, even during the 2008 financial crisis, losses remained very low: about 0.1 percent in a year based on an entire portfolio. And that’s still talking about a crisis year. Those strict underwriting criteria and conditions are positive for the credit profile of mortgages.

That new mortgage loans are now somewhat less affordable due to higher interest rates is just the way it is. At the same time, the so-called “loan-to-value” limits in neighboring countries are much lower, which means that you have to bring in a bigger down payment to buy a house. Therefore, foreign investors are also reluctant to enter the Dutch mortgage market, because here you can borrow up to 100 percent of the value of your house, which is basically very risky. On the other hand, there is a stricter test to see if the mortgage applicant’s income is sufficient to pay the monthly interest and repayment. Unlike in other countries, a mortgage is granted here based on a person’s income, not just on the house as collateral. That is the big difference.”

In conclusion, what will someone in the Netherlands who want to buy a house notice about this investment?
“To be honest, I think not very much. The landscape of Dutch mortgage lenders has been quite broad for quite some time. There are around 40 mortgage labels on the market. MUNT Hypotheken started in 2014 and has about 25 Dutch pension funds as investors. The total amount of outstanding mortgage debt in the Netherlands is over 800 billion euros. A new investment of 1.75 billion euros is not going to change much about MUNT’s product, but the investment could ensure that they maintain and perhaps strengthen their current market position as one of the biggest mortgage providers in the Netherlands.”


See the press release about the investment in MUNT Hypotheken.