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International mortgages markets differ widely due to regulations and the dynamics of supply and demand, among other factors. In this paper, the mortgage markets of various European countries are compared. The Dutch mortgage market, with its relatively low historical losses and arrears and relatively high interest rates, remains interesting for Dutch institutional investors compared to alternatives abroad (e.g. Belgium, Germany or Denmark). In addition the NHG guarantee by the Dutch central government offers additional protection for investors.
Global market overview
Figure 1 provides an overview of the countries that we examine in more detail in this paper. They are ranked according to the share of the relevant mortgage markets.
Total outstanding residential mortgage loans
Figure 1: Total outstanding residential mortgage loans (EU 27 countries plus the United Kingdom). Source: EMF (2020), as of December 31, 2019.
The size of the mortgage market is (logically) related to the size of the economy. Hence, the United Kingdom, Germany and France together already account for 56% of the European market. The Netherlands, Sweden and Denmark have a relatively large mortgage market compared to the size of their economy as well.
Criteria
In the article we compare the countries in Figure 1 using different criteria:
Residential mortgage debt vs. GDP
Household net wealth vs. net disposable income
Homeownership rate
House price development
Mortgage yields
Breakdown by fixed interest rate term
Mortgage financing method (direct loans, covered bonds or securitizations)
Prepayment penalties
Government support mechanisms
An example is shown in Figure 2, where we compare interest rates for new mortgage loans (with a fixed-rate term of more than 10 years) in different European countries. For Denmark we show the yield on callable mortgage bonds. The yield on Dutch mortgage loans is relatively high, especially compared to neighboring countries like Belgium and Germany.
Mortgage yields for a fixed-rate term over 10 years
Figure 2: Mortgage yields for a fixed-rate term over 10 years in different European countries. For Denmark we show the yield on callable mortgage bonds. Source: ECB Statistical Data Warehouse and Danske Bank (for the Danish mortgage bond yields), as of October 31, 2021.
Risk analysis
For more insight into the risk profile of different mortgage markets, we look at the following five variables in this paper: loan-to-value ratio, debt service-to-income, historical losses and arrears (in RMBSs) and foreclosure period. The extent to which a risk factor is relevant depends on the objective, risk tolerance and other constraints of an institutional investor. Our risk analysis can, however, serve as an aid to make a trade-off between the different countries based on one's own preferences.
As an example, Figure 3 shows historical losses and arrears for the different mortgage markets. Note that the Netherlands historically had very low losses and arrears. Note also that Figure 3 is based on data for securitizations which represents only part of the total mortgage market.
Historical losses and arrears in RMBS loans
Figure 3: Historical percentages of losses and arrears on outstanding RMBS. For Denmark, Germany and Sweden no data is available. Source: European Datawarehouse, Stratification Tables & Comparisons, as of February 2018.
