To be able to continue offering mortgage loans within the current LTV limits at
marketdriven and transparent prices, Nykredit introduces two-tier mortgaging
for commercial customers. Nykredit thus contributes to securing financial
stability, offering the most attractive mortgage rates possible in a market
characterised by financial risk.
As from 30 March 2009, Nykredit introduces two-tier mortgaging for the
financing of commercial properties. In future, all new loans secured on
commercial properties will be a combination of SDO loans and traditional
mortgage bond (RO) loans. The part of a loan which in a typical commercial
property is secured by mortgage on 0 to 45% of the property value will be
funded by SDOs, while the top part will be funded by ROs. The top part of the
loan will only be offered as a repayment mortgage. Where the LTV limit is 80%,
the SDO loan may amount to 60%. For further details on the implementation of
two-tier mortgaging, see the Appendix below.
In accordance with EU rules, Danish SDO legislation stipulates that mortgage
banks must provide supplementary security to bond investors if the value of
mortgaged properties decreases, and LTV ratios of the loans exceed the
stipulated LTV limits. This requirement applies on a permanent basis to SDOs,
but not to ROs. As a result of the SDO legislation, Nykredit therefore has to
issue so-called junior covered bonds, using the proceeds to provide security
for loans secured on properties that are subject to considerable price
declines.
This is an inexpedient and expensive solution - especially in relation to
properties showing substantial price fluctuations.
Two-tier mortgaging means that the overall yield-to-maturity of the combined
bond issues will be slightly higher. But the uncertainty and costs of having to
provide additional security if property prices fall will be eliminated, and the
reduced cost will benefit customers, who will continue to have access to the
most attractive mortgage rates possible.
- By using ROs for a small part of customers' loans, we obtain a solution
enabling Nykredit Commercial Customers to continue offering attractive
financing. Customers obtain transparent and market-driven prices reflecting the
extraordinary risk in financial markets. Also, the solution helps counteract
increasing mortgage loan prices in the long run, says Karsten Knudsen, Group
Managing Director.
For further information, please contact Karsten Knudsen, Group Managing
Director, tel +45 44 55 18 31, or Nels Petersen, Head of Corporate
Communications, tel +45 44 55 14 70/+45 20 22 22 72. For details on the bonds,
please contact Henrik Hjortshøj-Nielsen, Executive Vice President, tel +45 44
55 10 40.
