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IPE special report May 2018

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IMF warns Dutch pension funds against mortgage investments

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NETHERLANDS – Dutch pension funds should refrain from making additional investments in mortgages with the view to giving banks more leeway in getting the housing market moving again, the International Monetary Fund (IMF) has warned.

In an assessment of economic development and policy in the Netherlands, the IMF stressed that pension funds should manage their assets independently – and should not be incentivised to alter their asset allocation processes.

It also called for an "unimpeded" adjustment of house prices, the transparent pricing of real estate sector risk and the avoidance of additional contingent liabilities by the government.

The Dutch housing market has struggled as banks continue to tighten lending conditions and uncertainty clouds the government's policy on the tax-deductibility of interest on mortgages.

The IMF's report came in response to the conclusion of a committee chaired by Kees van Dijkhuizen, CFO at NIBC Bank.

The committee – which conducted its survey at the request of minister for housing Stef Blok – claimed there was support from the financial sector to involve institutional investors in mortgage financing through government-backed bonds, to be issued by a new national mortgage institute.

The committee estimated the total amount of "least risky" mortgage loans at €150bn.

In the past, the larger Dutch pension funds have been sceptical of the prospect of increasing investments in mortgages to shore up banks' balance sheets.

The schemes cited risk factors while warning that the allocation for investments would be limited in relation to the overall €650bn of mortgage loans issued by banks.

According to the IMF, the Dutch Cabinet must continue its efforts to reduce loan-to-value ratios and eliminate mortgage-interest deduction after the market has stabilised.

It also argued that the Dutch government's top priority should be to ensure the resilience of the banking sector, given its exposure to falling property prices and heavy reliance on wholesale funding.

The IMF recently concluded that worldwide risks posed by the financial sector could shift to other institutions such as pension funds as a consequence of central banks' monetary policies.

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