Besides the usual tulips, cheese, and clogs, there is another Dutch product that is particularly suitable for export. Distinguished by their long term fixed interest rate periods and predictable cash flows, Dutch mortgage investments stand out compared to those from other countries. "The characteristics of Dutch mortgages are really fundamentally different from those of foreign mortgages," said Hikmet Sevdican, Director of Achmea Mortgages.
"Dutch mortgages have a particularly long fixed interest rate period. Nowadays, 10 to 20 years is the norm, and in the past, it was even 20 to 30 years. Even 10 years is relatively long compared to Germany and the United Kingdom, where the fixed-interest period is usually much shorter. These long durations are particularly appealing to insurance companies and pension investors with long term liabilities. Additionally, the rates and returns on Dutch mortgages are relatively attractive for institutional investors," Hikmet continues.
International ambitions
In addition to Dutch institutional investors, Achmea Mortgages is also targeting international markets. While Hikmet refers to "unique characteristics," he acknowledges that there is still some work to be done to raise awareness. "Mortgages as an asset class initially had a hard time getting off the ground in the Netherlands. It took years before it became an approved asset class. Each pension fund had to get it approved individually. At certain point, pension funds just looked around to see who had already invested, and that made the investment process go faster each time."
Hikmet sees the same trend in the near future abroad. "We see interest from both pension funds and insurers. Several international insurers have already invested. Medium sized insurers not yet invested in Dutch mortgages are expected to follow this trend." He continues: "So we are focusing on institutional investors abroad: pension funds, insurers, and banks. We can facilitate them with our knowledge and expertise about the optionalities, risks, and returns. We can give international investors the comfort to embrace Dutch mortgages as an investment category."
Interesting developments in the UK
He continues: "So we are focusing on institutional investors abroad: pension funds, insurers, and banks. We can facilitate them with our knowledge and expertise about the optionalities, risks, and returns. We can give international investors the comfort to embrace Dutch mortgages as an investment category." Hikmet discusses the introduction of Solvency UK. Similar to the European Solvency II regulation implemented in 2016, the British Solvency regulation focuses on insurer oversight. In the context of this regulation, reforms are being implemented that give insurers more investment flexibility and room for long-term investments.
Specific investment categories eligible for inclusion in British insurers' portfolios include infrastructure loans, corporate loans, and mortgage loans with long, predictable cash flows. "Predictability is a key factor, and Achmea Mortgages can assist in estimating cash flows, making Dutch mortgages a viable option for British investors," Hikmet concludes.
More flexibility for sustainable investment portfolio
Solvency II also takes into account ESG factors in investment decisions, giving insurers more flexibility in pursuing a sustainable investment portfolio. A topic that, according to Hikmet, also fits very well with an investment in Dutch mortgages.
To achieve sustainable impact through Dutch mortgages, it is crucial to understand the Dutch mortgage market. Hikmet cites the example of a 'green loan part,' which incentivizes consumers to adopt sustainable practices. "What can a lender do to make this possible, and what is their span of control? I believe we need to demonstrate to foreign institutional investors that investing in Dutch mortgages is an effective way to achieve sustainability goals. This helps them align their portfolios with sustainability objectives and their own ESG policies. Achmea Mortgages is eager to assist in this process."
05-09-2024