Dutch securitisation shows notable resilience
Yuval Toledano is an Assistant Vice President for EMEA Structured Finance at Moody’s Investors Service. He looks back at the securitisation issuance market in 2023 and forecasts a cautious, but optimistic, look ahead at 2024.
How did the structured finance market perform last year?
2023 was a relatively good year for structured finance in the Netherlands. Issuance volumes increased compared to 2022 in the Dutch Prime RMBS and Auto ABS sectors, although they still remained below pre-pandemic levels. However, the issuance coming out of the once-promising Dutch BTL RMBS sector continued to decrease, mainly as a result of increasing regulatory pressure on the Dutch private rental market.
The performance of collateral backed Dutch structured finance transactions was also very strong, despite a challenging macroeconomic environment especially in the first half of the year. Arrears levels increased slightly compared to 2022, but remained at very low levels, and defaults and losses also remained very low.
Were there notable developments?
There was a substantial increase in the issuance volume of Dutch Prime RMBS compared to 2022, driven mainly by large transactions from Obvion, ING, and De Volksbank. Two of these large transactions – from Obvion and ING – were backed by green collateral, which was a notable development.
We also observed a broad decrease in prepayment levels in Dutch RMBS throughout 2023. This was mainly driven by increasing mortgage interest rates.
How does the Dutch market compare to the wider market for structured finance?
Issuance levels were generally healthy across Europe in 2023. The Dutch market was still a bit muted, compared to some other countries where the issuance was a bit more robust in 2023. In terms of performance, the Dutch market has historically been one of the best in Europe, and this was the case in 2023 as well.
Which countries stood out?
The UK structured finance market, which remains the largest in Europe, was active. There was also a substantial increase in the issuance of Auto ABS, particularly in Germany.
Did anything else take you by surprise last year?
The Dutch housing market rebounded more quickly and robustly than expected. After declining by over 6% between July 2022 and May 2023, house prices increased again by around 3% between May 2023 and November 2023, and are expected to increase back up to – and even beyond – the peak levels we saw in 2022 over the course 2024.
What caused this bounce?
It was driven by several different factors, including improved affordability on the back of declining house prices and rising income levels, coupled with a continued undersupply of properties.
Was this even more notable in the light of rising interest rates?
When interest rates were extremely low, house prices increased very rapidly. Then, when inflation rose and interest rates started to increase, house prices started to decrease. At the same time, income levels also increased, which, in combination with declining house prices, boosted housing affordability. However, although affordability did improve in 2023, it’s still extremely strained in The Netherlands, particularly in the large cities within the Randstad conurbation, and it will once again deteriorate as house prices resume their upward trend.
Any other developments?
We saw a larger volume of Dutch Auto ABS issuance in 2023, as new car registrations increased across all European markets including The Netherlands, albeit from historically low levels. We expect the growth in new car registrations to continue in 2024 because of increasing vehicle supply, but remain below pre-pandemic levels amid the weak economic backdrop.
How do you see issuance levels in 2024?
We expect issuance levels to remain broadly stable in the Dutch Prime RMBS sector, and decline in the Dutch BTL sector. It’s possible that some BTL lenders will pivot to slightly more esoteric products due to the lack of demand for regular private rental properties, and these specialized products could find their way to the structured finance market. We also expect the collateral performance of Dutch Prime and BTL RMBS to remain stable.
We expect auto ABS issuance to be stable compared to 2023. There is a general trend toward leasing transactions, reflecting underlying auto origination trends, which we expect to continue this year.
Are there any interesting new developments which you forecast could gain traction in 2024?
While we expect the rebound of the housing market to continue, the exact contours of this rebound will depend on the housing market policy the new government will adopt, for example relating to environmental regulation. It will be interesting to see if the new government – once formed – will find ways to increase construction of new properties, and which position it will adopt toward the private rental market.
We will also be observing the impact of new lending rules that went into effect as of January 1st, pursuant to which borrowing limits have been increased for energy-efficient properties as well as energy-saving renovations. The purpose of these rules is to encourage investment in energy-efficient homes. Ultimately, we believe the credit implications for Dutch covered bonds and RMBS should be neutral. While the new lending rules will increase the amount of debt that people who purchase energy-efficient homes or conduct energy-saving renovations take on, several factors will offset the otherwise negative impact of rising debt burden among mortgage borrowers, including the channelling of capital toward energy-efficient homes, which will increase their values relative to less-efficient homes, and the maintenance of the 100% LTV limit, which will put a prudent limit on the extent to which borrowing capacity on energy-efficient homes can increase.
At the same time, these new rules will weigh on the demand for, and values of, energy-inefficient homes. However, in Dutch RMBS pools, older mortgages are most likely to finance properties with low EPC labels, and these older mortgages have also benefited from property price increases, so leverage has often declined considerably since origination. This will mitigate the risk of declining recovery rates for these older mortgages as the value of energy-inefficient properties wanes.
What do you hope to gain from the securitisation event this year?
I attend every year, and the event always stands out by bringing together interesting market participants to discuss the prevailing trends. Also, the discussions and meetings that we have with issuers and investors looking at our respective views on the Dutch market are always stimulating. The exchange of ideas is extremely valuable.
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