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Sweden's $370 Billion Mortgage Market Gets A New Investment Fund
Photographer: Mikael Sjoberg/Bloomberg
November 15th, 2017 | 10:58 AM | 841 views
As investors wonder whether Sweden’s housing market is headed for a correction, the country’s first mortgage fund is about to enter the $370 billion Swedish home-loan industry.
Stabelo plans to pool capital from Swedish institutional investors in exchange for fixed-income securities. That money will then be lent to home buyers. The fund starts offering its products this week and will work with Avanza Bank AB, Sweden’s largest online lender. Avanza, which is also a shareholder in Stabelo, will handle distribution and marketing.
The new fund will hit a market that is showing signs of having reached a tipping point. After years of rapid growth, fueled by record-low rates and a shortage of homes, prices have started to fall. But with strict lending criteria, Stabelo says it isn’t too worried.
“This is the right time to be a conservative mortgage lender,” Hampus Broden, one of Stabelo’s three co-founders, said in a Nov. 10 interview in Stockholm.
“In a market where mortgages are not primarily priced according to risk but on cross-selling opportunities, the best risk-adjusted return is found in the most conservative part of the market,” he said.
Stabelo plans to compete on mortgage rates. It also promises higher returns to investors in part because it intends to keep costs low. Co-founder Michael Ingelog says the fund will be able to operate with lower mortgage margins than conventional lenders.
Sweden’s housing slowdown could even offer opportunities. Ingelog says the return on Stabelo’s mortgage fund could benefit from a correction because the returns on its bonds would increase if credit-spreads in the overall market rise.
Swedish insurance and pension funds have committed “several billion kronor” to Stabelo, said Ingelog. But the fund is open-ended and will accept new investment commitments on a continuous basis, he said.
The mortgage-fund model is new to Sweden, but is approved by the country’s regulator. It already exists elsewhere, including in the Netherlands. Stabelo’s third co-founder Wilhelm Moberg says loan losses at Dutch mortgage funds were much lower than at banks when the housing market there slumped.
Stabelo’s mortgage fund ought to be able to offer investors better returns than those on the covered bonds used by banks to fund their mortgage lending, Moberg said.
“The initial financing is enough to keep us busy for the foreseeable future,” he said.
courtesy of BLOOMBERG
by Love Liman and Niklas Magnusson
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