However, if we look at the spread between the cost of borrowing and the lending rate for mortgage institutions, there is no indication that the interest margin for mortgage institutions has fallen as a result of increased competition (Figure 5). Mortgage institutions´ long term interest margin. 12 10  %  8 6 4 2 0 Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 Interest rate on mortgage institutions´ borrowing, 5 years Mortgage institutions´ insterast rate on lending, 5 years. 3  BIS Review 99/2000  The new Internet-based players on the mortgage market are made up of those who mediate loans via the Internet and those who issue credit over the Internet. Players such as Blockbid, Bolånebörsen, Comboloan and E-loan search for and mediate the cheapest mortgages for borrowers. Europeloan, on the other hand, is an Internet-based credit issuer that has operated in Sweden since February 1999. The company, which also operates in Belgium and Germany, finances mortgages through securitisation. As more than 70% of the households have chosen floating interest rates on their new loans raised in the mortgage institutions during the last year, it could be suitable to look at the interest margin between short borrowing interest rates for mortgage institutions and floating interest rates on housing loans (Figure 6). This diagram suggests that the interest margin for mortgage institutions is now about 1.2% compared to about 1.5-1.7% during 1996. %  Mortgage institutions´ short term interest margin.
This separate company is then financed through issuing bonds on the market. The special purpose vehicle has a clearly defined risk scenario and does not pursue any business activities other than acting as holder of the specified loans. Consequently, the company is not subject to the capital adequacy regulations that apply for mortgage institutions. Securitisation has several advantages, the main one being that it enables mortgage institutions to reduce their share of equity and thereby their total financing cost, since equity is a more expensive source of financing than loan financing. Furthermore, mortgage institutions can streamline their operations by selling claims and by specialising in issuing loans. Securitisation can also increase the stability of the financial system as credit risks can be transferred from institutions subject to regulation to players that are less sensitive to heavy credit losses. Securitisation using a special purpose vehicle located in Sweden is permitted, but in practice it is unprofitable since, under the current regulations, the special purpose vehicle will be subject to the same capital adequacy regulations as the mortgage institutions. A proposal to improve the conditions for securitisation in Sweden is currently being prepared by the Ministry of Finance. The Budget Bill for 2001 states that the government intends to put forward a bill on improved conditions for securitisation during autumn 2000. To date, three Swedish mortgage institutions, SBAB, SEB-Bolån and Bokredit have undertaken securitisation via special purpose vehicles abroad.