Two weeks ago Jyske Bank, Denmark’s third-largest bank, shocked the world by offering mortgages with a negative interest rate. Put simply, the bank would effectively pay customers to borrow money. It’s a bit more complicated than that, however, as borrowers have to pay fees that offset the savings.
Because interest rates have gone down and the prices of mortgage bonds have gone up for investors, those rates can be passed on to borrowers — creating negative mortgages if they’re low enough.
The fact that banks and investors are willing to invest with negative returns is not necessarily a good thing, because it shows they would rather take a small loss than lose more elsewhere, because they view the economy as less-than-healthy. Though negative interest rates aren’t new in Europe, they are breaking new ground, from these types of mortgages to Germany selling a negative-yielding 30-year bond for the first time in August.
Despite being in “historic remortgaging,” Høegh said the negative interest rates don’t actually make it any easier for home buyers to get a loan, but makes it easier to get a bigger loan – a lower rate means a higher disposable budget.
“People find the new loans very attractive, but I don’t think that it is a big surprise for them,” said Høegh. “The most surprising thing is that de-link between the real estate prices and the interest rate is in these years less significant.”
Jyske Bank’s graph showing the amount of new loans over time.
In other words, a flurry of borrowing and higher-value loans hasn’t had a big effect on housing prices, even though many of these loans are used to buy property or renovate.
Nordea, another bank in Denmark that began offering zero-interest 30-year loans, hasn’t seen much of a change, on the other hand, perhaps illustrating that despite global coverage, it hasn’t had much of an effect.
“We don’t think that anything has changed,” said Lise Bergmann, housing economist and chief analyst at Nordea. “The investor interest is more or less the same as before the news coverage.”
Looking at a chart regarding new loans provided to Yahoo Finance by Jyske Bank, the answer is probably somewhere in the middle. There has, indeed, been a surge in new loans this summer, but on a 20-plus year chart, it’s not as breathtaking as one might expect from a negative-interest mortgage.
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