a.s.r. mortgage fund
a.s.r. has offered mortgages in the Dutch market for more than 60 years. The total amount of mortgages provided is about € 2 billion annually. From mid-2017 onwards, investors have been able to participate in a cross-section of a.s.r.’s mortgage origination.
The ASR Hypotheekfonds (mortgage fund) gives investors the opportunity to invest in Dutch retail residential mortgages. The objective of the ASR Hypotheekfonds is to generate a stable and direct revenue stream for its participants in the long term.
The ASR Hypotheekfonds is a mutual fund that offers a choice between two sub-funds, each with their own risk profile:
- A sub-fund with state-guaranteed mortgages. This sub-fund only includes mortgage loans that are subject to a Dutch National Mortgage Guarantee (NHG), meaning that they come with a low risk profile.
- A sub-fund with no state-guaranteed mortgages. This sub-fund only includes mortgage loans that are not subject to a Dutch National Mortgage Guarantee (NHG), meaning that they come with a higher risk profile and a higher return.
The sub-fund with state-guaranteed mortgages has an implied rating of AA+ and the sub-fund with no state-guaranteed mortgages has an implied rating of AA-.
Participating in the ASR Hypotheekfonds offers an attractive return. In the longer run, the return will be higher than that on a Dutch government loan, whereas the risk profile is relatively low. The average duration is expected to be about seven to eight years. Compared to the market, the default rate is exceptionally low. The expected default rate for 2018 is less than 0.01%.
The process is well-structured and liquidity is an area of focus:
- Participants can opt to have interest and (early) repayments paid out to them monthly rather than reinvesting them;
- Regular and early repayments designed for reinvestment can be used to acquire participations from existing participants.
The ASR Hypotheekfonds invests in Dutch mortgage loans that have recently been provided by ASR Levensverzekering N.V. The ASR Hypotheekfonds assumes a representative cross-section of recently provided mortgages at a nominal value of 100% (executed before a civil-law notary no more than 60 days ago). The collateral for the loans is made up of Dutch residential properties. All assumed loans are subject to the strict selection criteria of the ASR Hypotheekfonds. The key selection criteria are first right of mortgage, a fixed-rate period of more than five years, a loan-to-value (LTV) of no more than 100%, no savings-linked mortgages and a cap on interest-only percentages. The fund does not make use of derivatives and keeps its cash reserves as low as possible. It does not have a benchmark, although the results are compared to developments in the swap curve.
The costs of the fund are fixed; participants pay an all-in fee.
Early in 2018, the size of the fund was more than € 600 million; at that time, various parties indicated that they planned to contribute at least another € 500 million.
Short introduction to the Dutch mortgage market
Why the ASR Mortgage fund is attractive for foreign investors? Below you will find some characteristics of the Dutch Mortgage Market.
The Dutch mortgage market is known for its relatively high outstanding mortgage debt and high average Loan-to-Value (LTV) ratio. At the same time this market has consistent low loss rates as a result of strong payment behaviour. During the last 50 years the highest peak in defaults was 0,2% when mortgage rates were over 10%. For the coming years we expect a default rate below 0,01% per annum. Furthermore and on top of that, The Netherlands have one of the best social security systems in the world and a favorable tax regime (interest payments on mortgages are tax deductible),
Investors can invest in mortgages with a government guarantee, National Mortgage Guarantee. (Nationale Hypotheek Garantie or NHG). The National Mortgage Guarantee (NHG) is a guarantee from the Dutch state (AAA) that covers principal and interest shortfalls. This results in lower credit risk, but also lower mortgage rates.
More information on the Dutch mortgage market: