Speaking at a round table discussion looking into the Danish mortgage bond market, he told delegates that while Denmark’s securitisation model helped it withstand the financial crisis, the same model cannot be applied to the UK mortgage market.
The Danish mortgage bond market involves a principle of balance, where mortgages are financed by bonds for the same amount and rate.
The bonds are secured by cover pools of similar mortgages and interest and principal payments are passed through to the bondholders. The model also sees interest rate risk lie with the bondholder, while credit risk lies with the lender.
He added that an advantage of the Danish model is that Denmark has big domestic institutions to buy the bonds, while the UK bond market is more dependent on foreign institutions.
He also criticised the small role that brokers play in the Danish market, arguing that they’re not a major feature in it as they are in the UK market.
Despite this, he said that UK lenders could use the Danish model as an alternative mortgage finance model, but that it would be difficult to get the industry to shift its business model to reflect the Danish mortgage bond market.
