DNBulletin: Dutch banks see market share in home mortgage lending stabilise
In the Netherlands, banks have managed to hold on to their combined market share in terms of new home mortgage loans granted. Over the past few years, they accounted for roughly two-thirds of new mortgage loans. Insurance firms, pension funds and investment funds saw their combined market share remain unchanged at around one-third, following sharp growth until 2016. In a related development, the loans granted by banks and non-banks have shown increasing convergence. Although their market share in new loans granted remained flat, non-banks expanded their total exposure to mortgage loans, marking a trend that contributes to a more balanced funding of longer-term loans.
Banks’ market share in mortgage loans is no longer shrinking
In the past two years, Dutch banks accounted for roughly two-thirds of new mortgage loans granted in connection with both home purchases and renegotiations. One-third of the new home loans were granted by insurance firms, pension funds and investment funds. The same distribution was seen in 2016, which points at a notable stabilisation in market shares following the shift from banks to non-banks witnessed in the 2013-2016 period. This can be explained by the fact that banks have returned to the market with increased activity following several years of restraint. For example, in the 15-20 year fixed-interest period segment, their market share went up from one-third to 45%. A further factor is that insurance firms have less room for growth following previous mortgage loan portfolio expansions.
Chart 1: Market shares in home mortgage loan production
Source: DNB loan level data.
With new mortgage loan production having gone up sharply, non-banks saw their total exposure to mortgage loans grow further on the back of their continued activity in this market. As a result, by mid-2018, the combined balance sheets of insurance firms, pension funds and investment funds showed EUR 146 billion in Dutch mortgage loans (see Chart 2), up 10% from a year earlier. Viewed over the past five years, their combined exposure climbed over 80%.
Chart 2: Outstanding home mortgage lending by sector
Source: DNB. Notes: Exposure to Dutch home mortgage loans in EUR billions. Pension fund exposure includes indirect exposure through investment funds. Insurance firm exposure includes that of banks owned by insurance firms.
Bank and non-bank loans show increasing convergence
Mortgage loans granted by insurance firms, pension funds and investment funds tend to differ from those granted by banks in some respects. For example, new mortgage loans granted by non-banks on average feature longer fixed-interest periods than those granted by banks, at 16 and 12 years, respectively. Also, non-banks offer more loans with higher loan to value (LTV) ratios. Of the new mortgage loans granted by non-banks, 62% feature LTV ratios above 90%, against 49% for banks. In addition, non-banks grant more loans covered by the Dutch National Mortgage Guarantee (NHG) scheme. These differences have narrowed over the past few years, however, with banks focusing more on long fixed-interest periods and non-banks granting more non-NHG loans. As Dutch banks and non-banks increasingly target the same customers, their mortgage loans have become more similar.
Insurance firms and pension funds’ portfolios also include large volumes of interest-only mortgage loans
Nearly 40% of the home mortgage loans in insurance firms’, pension funds’ and investment funds’ portfolios are interest-only, meaning the principal amount is not repaid during the loan's term. While lower than that for banks, whose mortgage loan portfolios consist of 50% in interest-only loans, this proportion is still significant. Furthermore, the share of interest-only loans in banks’ new production edged down from 38% to 35%, whereas it showed an uptick from 28% to 31% for non-banks. Given this further area of convergence between banks and non-banks, they have a shared duty to alert their customers to the risks inherent in interest-only mortgage loans.
