Opportunity knocks

Property derivatives are already used in the commercial mortgage market, and growth is forecast in this area. However, there's untapped potential in the huge residential mortgage market - so what will it take for lenders to see the benefits of hedging their exposure? William Rhode investigates

Mortgage banks are proving slow to use property derivatives despite the growing exposure of those banks to falling house prices. Yet with the advent of mortgages of up to seven times earnings and equity release loans based on elevated market valuations, lenders have become indirectly and increasingly exposed to property price risk. Parts of the US have already seen falling house prices - but Europe may need to follow suit before European lenders recognise the benefits of hedging.

In the event of