Two years ago, the NHI was expected to issue at least €25bn in government-backed mortgage bonds within five years.But now the need for an NHI is far less urgent, according to housing minister Stref Blok.In a letter to Parliament, he noted an improvement in the market, driven by a sharp decline in mortgage rates and a narrowing funding gap at banks through alternative means of financing.At the same time, Dutch pension funds have increased their investments in mortgage funds, in 2014, nearly doubling their holdings to €6.7bn.Despite this increase, mortgage funds – which consist largely of indirect investments by pension funds through asset manager funds, or co-operation with other market players – still account for just 1% of all issued residential mortgages in the Netherlands. After the government’s announcement that the NHI would be scrapped, a spokesman for MN, the €110bn asset manager for the large metal schemes PME and PMT, said the Dutch mortgage market had finally “sorted itself out”.He noted that pension funds had been investing increasingly in mortgage funds, with PMT recently an additional €1bn commitment to the Dutch Mortgage Funding Company (DMFCO).Jeroen van Hessen, managing partner at the DMFCO, said: “We are pleased the market can do its job now. The combination of mortgages, state support and banks in the NHI was not a good idea from the start.”PGGM, which had been involved in the establishment of the NHI, said it was pleased with this “workable” instrument.However, it declined to confirm whether it would have invested in NHI-issued bonds.At present, PGGM does not invest in mortgages. Meanwhile, APG, the €424bn asset manager for ABP, said it understood the banks’ conclusion that complying with the European Commission’s conditions would have meant they would lose money by participating in the NHI. The Dutch government has scrapped plans for a National Mortgages Institution (NHI) after the parties involved in the project failed to agree on how best to address the European Commission’s decision that the NHI would be tantamount to state aid.Jan van Rutte, a former banker who was responsible for setting up the institution, said the European Commission’s conditions for preventing unintended state support – or passing financial benefits on to consumers – were “too stringent”.The Dutch government intended the NHI to stabilise financing in the local residential mortgage market.It was to streamline access to the market and increase competition via the issuance of government-backed mortgage bonds.