Americans are trying to get Denmark's negative-interest mortgages
A newly constructed single family home is shown as sold in Encinitas, California, U.S., July 31, 2019.
REUTERS/Mike Blake
BERLIN - 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.
The
news got loads of attention, as people struggled to wrap their heads
around being paid for something they are supposed to be purchasing.
Consumers around the world wanted in on the action.
The
weekend following the negative mortgages announcement, Jyske Bank
received 80-90 inquiries from Americans who wanted these viral
mortgages.
It’s all been rather amusing for Jyske Bank and its housing economist Mikkel Høegh, who has had to deal with all the attention.
“What
I have said to the Americans is that they have to have a Danish
property to get such a loan,” Høegh told Yahoo Finance in an email.
“Some of the Americans then asked if I could help them buying a property
in Denmark. I can’t with that but we can help them with the funding if
they get the house.”
Jyske
Bank has had to do a lot of clarifying; there’s a widespread
misconception that the bank is actually paying borrowers to take their
money. First of all, the bank is not actually paying anyone; it is
simply forgiving part of the loan each time a payment is made. A
mortgage borrower is likely to end up paying Jyske back a little more
than they borrowed, factoring in fees and charges associated with
arranging the mortgage loan.
And the bank can afford to do this without losing money because it borrows at negative interest rates as well.
“The
experience has been quite good,” Høegh told Yahoo Finance in an email.
“Many people like to hear about the loans and apply for them.” Høegh
added that the country was amidst a historic refinancing of mortgages.
Mortgage debt in Denmark increased in 88 of 98 municipalities, according to Denmark’s national bank, with most customers choosing fixed rates.
How it works
Denmark
has had low interest rates for a long time, and the country’s banking
system has a closer than normal relationship between borrowers and
investors, facilitated by banks.
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.”
View photos
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.-
Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, personal finance, retail, airlines, and more. Follow him on Twitter @ewolffmann.
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