First it was the Netherlands, now Sweden. Like the Dutch, Swedish bankers have for years enjoyed a profitable and fairly oligopolistic banking sector, underpinned by high-margin and low-risk mortgages. But while challengers like Lansforsakringar and the Swedish arm of Danske Bank are gaining share, this year has also seen the entry of new online mortgage platforms using money sourced directly from local pension funds.
As the investors seem happy with initial results, the new entrants are preparing to scale up. A group of five Swedish pension funds is backing Hypoteket, which is advertised on the websites and newspapers of its Swedish media group backer, Schibsted. Similar investors are behind another recently launched mortgage fund, Stabelo, distributed by an established Swedish online savings and investments platform, Avanza.
Hypoteket’s co-founder and chief executive Carl Johan Nordquist says the investors have committed a local currency equivalent of around $250 million in aggregate to Stabelo and Hypoteket, allowing originations of about $25 million per month. He much expects larger commitments to follow soon, allowing the volume of monthly originations to triple in the autumn and winter.
This may still be small compared with the SKr3 trillion ($333 billion) mortgage market, but the new players envisage aggregate portfolios between the two of them and perhaps one other, in the hundreds of billion kronor. They say a realistic aim is a share in line with what equivalent Dutch platforms have achieved in recent years, around 10% of outstanding mortgages.
Reaction
More importantly for the banks, although they have only been making loans for a matter of months, the new entrants say banks have already reacted by adjusting their mortgage prices. It follows a similar trend in the Netherlands, where equity analysts fret about an accentuated tightening of mortgage margins because of the growing competition from insurers and more recently pension funds.
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Hampus Broden, |
If the Dutch and Swedish model is applicable elsewhere in Europe, Stabelo founder Hampus Broden says it is because international regulation is lowering the capital charges on long-dated maturities for pension funds relative to banks.
“In the covered bond markets pension funds are paying a premium for liquidity that they do not need,” he says. More of that money could go through funds like Stabelo instead, goes the logic, allowing them to benefit from their lack of short-term liquidity requirements through higher yields.
Industry insiders say there is regulatory support for the new non-bank lenders, as it offers more choice for the consumer, and possibly lower costs, thanks to the lower cost bases of purely online platforms.
Former software developer Alexander Widegren, who recently set up an online mortgage prototype called Enkla with his brother Marcus, illustrates the point well. He says Swedish banks’ mortgage handlers on average process just one mortgage per month. Earlier this year, he says Enkla registered around 10,000 potential borrowers in just four days while no one at Enkla was in the office. “When computer nerds go to the financial world magic happens, but when financiers go into tech nothing much happens,” he says.
Broden says the trend has happened first in Sweden and the Netherlands, partly because of structurally low levels of defaults, even if it is happening at a time when the property market is slowing, especially in Stockholm.
According to Nordquist, Sweden is also a particularly propitious environment for mortgage challengers as in recent years margins have swelled while customer satisfaction with banks has fallen to levels not known since the 1990s Nordic banking crisis. Widegren describes having to spend hours waiting to speak to someone at a bank on the phone and a phenomenon he calls bank-phobia. “People are more nervous to go to the bank than the dentist.”
He says widespread branch closures have not made clients any happier with the banks.
Fed up
While most Swedish borrowers are on variable-rate mortgages, Nordquist says customers are fed up with having to bargain on official prices for temporary discounts, which are then removed every year or two. He says Hypoteket has a more transparent offer, with lower published rates. This is also part of Stabelo’s appeal, according to Avanza chief executive Rikard Josefson. “The Swedish consumer is tired of renegotiating their mortgage rates every second year.”
But the challengers’ core proposition remains that they are on average cheaper than the traditional banks – by about 30 basis points in the case of Hypteket and Stabelo. Stabelo’s headline rate is 1.29% for a three-month term assuming a maximum 60% loan-to-value (although Josefson says borrowers can get rates as low as 1.05% by bargaining with banks). Widegren talks about a rate of 0.95%, although Enkla has not yet started issuing mortgages or even accessed the mortgage-backed bond funding it hopes to use due to legal headaches.
In the even higher-margin Irish market, The Frank Mortgage came close to launching last year, also in the Dutch mold, with money from local pension funds. A source involved in the project says it came undone as a government fund pulled out in order not to clash with the IPO of state-owned Allied Irish Banks (AIB), but the project could be resurrected.
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