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Danish bank launches negative interest rate mortgage

248 points by neka 7y ago

aszantu 7y ago
what does that mean for poor people, does someone know? Can someone explain?
- enra 7y ago
  Poor people don't always have the means to save to afford the 10-30% down payment, so they cannot benefit from the cheap mortgage rates.
  - joeyrideout 7y ago
    On the other hand, the banks are basically transferring wealth to the middle class (or anyone who can afford a mortgage) by paying them to borrow money.
  - msh 7y ago
    In Denmark the required downpayment is 5%, up from 0 a few years ago.
    - fuzz4lyfe 7y ago
      Same in the US effectively. You will have to pay extra for mortgage insurance but I think the 20% notion is long dead.
- collyw 7y ago
  House prices will remain artificially high so they won't be able to afford one.
- UnFleshedOne 7y ago
  Poor people are screwed up regardless -- if rates are high, they can't afford payments, if rates are low, prices rise and they still can't afford payments. Not to mention getting downpayment. Workaround: don't be poor.
  - dsfyu404ed 7y ago
    The down payment is the hardest part. "Just barely able to make payments" people are better off when rates are high because that depresses prices resulting in a lesser dollar amount for whatever the down-payment is.
  - davidw 7y ago
    Do rising prices spur the construction of more homes in Denmark?
    - scandinavian 7y ago
      Seems pretty steady: https://i.imgur.com/wF6PCnU.png https://i.imgur.com/wF6PCnU.png 2019 is not over yet, so maybe it's a little higher this year. This is only for "parcelhuse", which wikipedia defines as: "Single-family detached home".
      - davidw 7y ago
        Homes come in a lot of shapes and sizes though - in Italy where I lived for a number of years, it's pretty common for people to live in a flat in a 4/6/8/whatever unit building, either as owners or renters. Depending on where demand is, I'd expect more of that sort of thing too, if it's allowed. In the US, it is forbidden to build those kinds of homes in large areas of our cities.
        scandinavian 7y ago
        https://i.imgur.com/2iCJllW.png https://i.imgur.com/2iCJllW.png Here is the graph for multistorey apartment buildings. I'm not smart enough to interpret what this means. In the big city I live in in Denmark, most new apartment buildings are luxury apartments and expensive as hell, so I don't think they are a result of rising house prices.
        davidw 7y ago
        In general, new construction is expensive, but if you cut off that supply, people with money just bid up prices on older housing. Looks like the graph kicked up in response to something... that's good, I guess.
- chvid 7y ago
  For poor people it means that your rent continues to rise, house prices become further inflated and you will still pay massive interest rates if you get a consumer loan.
  - msh 7y ago
    In Denmark the rents are not free market so they can't just rise with house prices.
    - tom_mellior 7y ago
      What can they rise with? Some official inflation rate? Does the calculation of that inflation rate include house prices?
      - msh 7y ago
        There are some details here: http://www.rentingindenmark.com/prices-and-rent/ http://www.rentingindenmark.com/prices-and-rent/
    - chvid 7y ago
      There is no rent control for buildings built after 1993.
      - msh 7y ago
        There is not strict rent control but that does not mean that the landlord can increase the rent as he sees fit.
apo 7y ago
This is all the more surprising given that inflation in Denmark is running ~1%/year. That means the bank is absorbing a real loss of 1.5%/year on the deal. Meanwhile, the housing market is roaring: https://tradingeconomics.com/denmark/housing-index https://tradingeconomics.com/denmark/housing-index It would be one thing to see negative rates in a declining property market and/or in a deflationary environment. However, negative rate mortgages are happening in what looks like a normal economy with low inflation and red-hot housing market. Somebody is very wrong about one or more of the following: - the future direction of the housing market - the future direction of interest rates - the future direction of inflation Edit: Google translate sheds some light. It appears that the Danish equivalent of "points' clouds the picture: > Total repayments before tax DKK 277,392 (on a DKK 250,000 loan) - of which total interest and contributions DKK 8,264 changes in the exchange rate will affect the size of the amount paid out. https://translate.google.com/translate?hl=en&sl=auto&tl=en&u=https%3A%2F%2Fwww.jyskebank.dk%2Fbolig%2Fnyheder%2Frealkredit-med-negativ-rente https://translate.google.com/translate?hl=en&sl=auto&tl=en&u... Low, but not negative.
- kebman 7y ago
  As far as I know, fees and charges on the loan make it about 2% anyway. Still a pretty cheap loan, I'd say.
  - apo 7y ago
    Good point - updated answer with a link. Hopefully there's a better one out there.
- collyw 7y ago
  >That means the bank is absorbing a real loss of 1.5%/year on the deal. (As I understand it) the Eurobor rate is negative (the rate that the central bank lends to the other banks), so its unlikely that the bank are taking the hit directly.
  - zajio1am 7y ago
    Euribor is not a rate that central bank lends to other banks, it is a rate commercial banks lend between themselves. ECB has its own rates (e.g. deposit facility, marginal lending facility for overnight deposits and loans).
kebman 7y ago
Here's the actual bank source, in Danish: https://www.jyskebank.dk/bolig/nyheder/realkredit-med-negativ-rente https://www.jyskebank.dk/bolig/nyheder/realkredit-med-negati...
0x0 7y ago
The effective interest seems to be above 0% though. The linked FAQ shows calculations where the total amount paid back is more than the total loan amount. Plus some talk about some kind of exchange rate(?) seems like this could be even riskier than normal?
- nabdab 7y ago
  The “Exchange rate” is the kurs(Danish) when the loan is for instance at kurs95 that means you only get 95% of the loaned amount. Effectively the investor gets a bigger principal than was actually loaned. Depending on invester pressure the kurs goes up, but It’s typically close at 100, and a lower rate loan is then opened up, since investing in a kurs100+ loan means taking an emidiate hit on the principal owed, which is bad for investors even if interests pay back the gap over time. And true, even with negative rate this loans kurs plus fixed costs still mean you are still paying the bank more than they are loaning you.
  - nybble41 7y ago
    > Effectively the investor gets a bigger principal than was actually loaned. This difference between the amount loaned and the amount paid back over the life of the loan is commonly referred to as "interest". It really feels like they're just playing semantic games here. Any proper comparison of APRs would include both components. A true "negative interest rate mortgage" would be one where the bank pays you to borrow money, with the total amount borrowed being greater than the total amount paid back to the bank.
sleepysysadmin 7y ago
Not the world's first at all. https://tradingeconomics.com/switzerland/interest-rate https://tradingeconomics.com/switzerland/interest-rate Switzerland has been negative for years. Negative interest rates mean only 1 thing. The central bank is 100% confident that they are on the brink of deflationary spiral; much like Greece or Japan. This is all connected: https://news.ycombinator.com/item?id=20615403 https://news.ycombinator.com/item?id=20615403 https://news.ycombinator.com/item?id=20654624 https://news.ycombinator.com/item?id=20654624 https://tradingeconomics.com/canada/households-debt-to-income https://tradingeconomics.com/canada/households-debt-to-incom... When you are above 100% disposable debt to income. It means you must stop spending or your debt continues to increase. 170% is worse than the USA's financial crisis. Other countries like Australia are up around 200%. We have reached a long term debt cycle. We are about to have one of the worst recessions in a very long time OR depression.
- ferzul 7y ago
  been told I should worry about it for years now, but Australia's economy hasn't broken yet (it's weak, but that just means it's doing better than comparable nations but less than what it could be if we weren't being mismanaged by the most incompetent government this side of the black stump). how can I rely on a forecast that is eternally bad? I guess the economy will turn sour eventually, but I can't rely on a prediction that's always bad news since I'll miss all the good.
  - sleepysysadmin 7y ago
    >been told I should worry about it for years now There was people mid financial crisis who were still denying the recession. There are tons of people who are saying we are going to have a recession during market highs. >but Australia's economy hasn't broken yet (it's weak, but that just means it's doing better than comparable nations but less than what it could be if we weren't being mismanaged by the most incompetent government this side of the black stump). I'm not Aussie; love Australia though. Politics aside, that's the thing people don't understand right before a debt cycle. Housing prices go sky high, car manufacturing dies, debt becomes tremendously cheap, manufacturing isms crash or contract, prime rates usually just went up, unemployment at historical lows. Literally all these indicators are pretty strong indicators and ALL of them are happening. >how can I rely on a forecast that is eternally bad? I guess the economy will turn sour eventually, but I can't rely on a prediction that's always bad news since I'll miss all the good. That's more a perspective. If you watch CNBC, they literally didn't believe the financial crisis was happened and it has been a bull market since forever. Zerohedge on the otherhand will have an article a day explaining how society's downfall is upon us. The important thing to understand is that literally nobody has a clue what's going to happen. We may never have another recession; ETFs and passive nature of investing could lead to markets just being completely stable from now on. Bitcoin could be the one picking up all the volatility, leaving the stock markets stable. Personally I think the debt cycle is immutable. One person's spending is another person's paycheque. When the automotive sector has basically started laying off people because people aren't buying cars; and it's happening to all Euros, Japanese, and North America car manufacturing companies are all laying people off. That's the beginning of the cycle downturn.
ptah 7y ago
this is pretty awesome. hopefully it spreads across europe
- buboard 7y ago
  this isn't free money
  - martin_bech 7y ago
    It actually is.. any morgage below infation, is free money..
    - gruez 7y ago
      It's not. Since home prices are linked to interest rates (prices go up/down depending on interest rate movements), all that's going to happen is that home prices will go even higher. In the end your monthly payments is going to be the same.
    - buboard 7y ago
      You really think a for-profit bank would give more than it takes?
      - useerup 7y ago
        The bank takes it's share in the form of fees. The negative rate is simply because the money market sees negative rates on the 5-10 year horizon. The bank simply passes the rate of the money market on to the consumer: > Høegh said Jyske Bank is able to go into money markets and borrow from institutional investors at a negative rate, and is simply passing this on to its customers. Negative bond rates happen when there is a surplus of capital looking for "safe havens". Some investors are willing to pay to have money placed safely for a number of years. The Danish real-estate bonds are regarded as a very safe haven.
    - nabdab 7y ago
      This loans effective cost is above inflation. Inflation is in the 1-2% range and this is net at 2.1% There’s no free money just flashy marketing.
chvid 7y ago
Danish mortgage bonds are effectively guaranteed by the Danish state and there are only a few actual government bonds in circulation. The interest rates go below 0 because investors don't trust banks with their money.
- olau 7y ago
  > Danish mortgage bonds are effectively guaranteed by the Danish state I don't think that's true? Can you explain what you mean? It's probably true that a total collapse won't be tolerated, just like a total collapse of the banking sector wouldn't be tolerated.
- Someone 7y ago
  ”The interest rates go below 0 because investors don't trust banks with their money.” If investors didn’t trust banks, they would demand high interest rates when borrowing banks their money, just as they demand higher interest from those who want to make smaller down-payments on houses, or on credit card debts. Looking at https://www.investing.com/rates-bonds/european-government-bonds https://www.investing.com/rates-bonds/european-government-bo..., many European countries (even Spain and, short-term, Italy) can borrow money from the market at negative interest rates. That must mean those borrowing them money must be confident they will get that money back (not that surprising, given that the ECB keeps printing money)
jjoergensen 7y ago
Buying a house means taking over a payment and tax liability, it's not just about owning and controlling an asset. Confidence in the financial system is apparently so low that someone is willing to pay you fictitious money now in return of fewer actual cash in the future.
- spaceflunky 7y ago
  What am I missing here? why are they doing this? There has to be some other gain somewhere else.
  - novaRom 7y ago
    The gain is they will loose less than borrowers.
  - Traster 7y ago
    It's fixed for 10 years. So yes, it's underperforming right now, but the fact that the yield curve has inverted gives them good reason to believe that there's going to be a recession in the next 10 years, so actually this is a relatively good return compared to losing money in the stock market or losing even more by buying the 10 year govenrment bond which right now is paying -0.58%.
    - spaceflunky 7y ago
      why can't they just sit on the money? Wouldn't that perform better?
kgwgk 7y ago
Not really. “As a result, oddities now abound. Danish lender Jyske Bank last week issued a 10-year mortgage bond at an interest rate of minus 0.5 per cent, meaning homeowners are being paid to borrow.” In fact the providers of the capital will pay the bank for those mortgage-backed bonds (they get a negative yield). The bank will get some spread from the client, who will also pay. https://www.google.ch/amp/s/amp.ft.com/content/820e3aac-ba1a-11e9-8a88-aa6628ac896c https://www.google.ch/amp/s/amp.ft.com/content/820e3aac-ba1a...
- NKCSS 7y ago
  Don't forget the mortage runs for 30 years and after 10 years, you are forced to pay the rate at that moment... so in the end, it will be ok :)
  - adamlett 7y ago
    There no rule that the mortgage will run for 30 years. It’s just what most people choose. But there’s nothing stopping anyone from paying back the entire mortgage in 10 years.
    - megaremote 7y ago
      > But there’s nothing stopping anyone from paying back the entire mortgage in 10 years. Apart from not having the money.
    - Phillipharryt 7y ago
      I can't find all the fine details on this loan, but there are definitely loans that stop you from prepayment, or at least have a penalty associated with them. These penalties can be pretty large and definitely are a reason not to pay back the entire mortgage before 10 years. In this exceptional case I'm assuming there is a prepayment penalty for a large portion of that 10 year fixed rate period.
      - systemtest 7y ago
        Those prepayment fines are basically what the bank is losing out on you. If you have a 3% mortgage and the current rate is 2%, then the bank would lose out 1% for the current mortgage period. That's the penalty.
devoply 7y ago
We need to see more of this so we can transfer wealth from the rich to the poor more effectively and get them to invest in the economy.
- nabdab 7y ago
  More money is loaned to the rich than is to the poor. So this is giving more money to the rich than it does to the poor.
- benj111 7y ago
  Is that necessarily the case? I as a home owner would be interested for a remortgage to stick in the stock market (or even a risk free investment). Not really a poor person option though. This would presumably just inflate the/a housing bubble, which doesn't seem like it would inherently help poor people, you cant really liquidate the asset as you need to live in it. Second homes on the other hand....
- opportune 7y ago
  Good luck getting a negative interest rate loan as a poor person
jjazwiecki 7y ago
Just listened to this Bloomberg podcast, where they interviewed Viktor Shvets on the meaning/implications/future of negative interest rates: https://www.bloomberg.com/news/audio/2019-08-09/what-negative-interest-rates-mean-for-the-world-podcast https://www.bloomberg.com/news/audio/2019-08-09/what-negativ... > He argues that undermining the ’time value’ of money–or the principle that money available now is worth more than money in the future because you can use it to earn additional money–won’t lead to economic growth. In fact, he says, negative rates are going to end up leading to a rethink of modern capitalism and political society once people realize they have big consequences.
- klipt 7y ago
  Isn't that also why economists think excessive inflation is bad? Because it undermines the "time value of money"? So to avoid inflation, instead of printing money, we lower interest rates. But once interest rates go below 0, that also undermines the time value of money. Oops.
  - zaroth 7y ago
    Lower rates cause increased inflation. Rates are lowered by increasing the price of bonds, by buying them, e.g. "printing money".
jonplackett 7y ago
Can someone explain simply how they make money doing this? Or how the institutional investors they mention make money?
- azinman2 7y ago
  They borrow the money on money markets from people who will lose even more, and you get some of the upside as well.
- martin_bech 7y ago
  Ill try.. danish morgages are based on bonds, just like government bonds, but realestate instaed. So the issuer just takes a small cut, dosent matter for them if rates are 10% or negatve 1%, (they take about 0,6%). Now who buys the bonds then and “loose” money? Mostly institions, pensionfunds, corporations and normal investors. They take on theese investors, because they have to.. rates in banks are even lower (even more negativ), and deposits are only insured for about 100.000euro. These bonds, while negative, are more secure, and less negative.
  - jonplackett 7y ago
    Thanks, makes sense. Well at least the explanation does, but the world is still crazy!
  - joshuaheard 7y ago
    Why don't they buy gold or some other asset that does not lose money like this?
    - tlb 7y ago
      The cost of storing gold isn't zero. If you have $100M of gold, you have to prevent serious organized criminals from stealing it. That can cost $500k/yr (ie, -0.5% return) for 3 shifts of security and a vault, cameras, insurance, etc. Brinks will store it for you for 0.72%/yr. https://goldsilver.com/vault-storage/ https://goldsilver.com/vault-storage/
    - 7y ago
pontifk8r 7y ago
It seems like a (cynical?) way to turn today's overpriced real estate assets into a stream of payments. Someone purchasing a home for DKK 300K with no interest may think they're getting a deal, until they try to resell that home and find out they cannot sell it for more than DKK 240K.
- klipt 7y ago
  That would imply we're getting into a weird deflationary regime where money shrinks under negative interest rates, yet still buys more in the future!
  - deleted 7y ago
    [deleted]
  - Areading314 7y ago
    kind of the opposite of stagflation deflecitation
  - imtringued 7y ago
    The idea of injecting money into the economy by lowering interest rates works but people usually only get loans for houses or cars. No one buys their groceries with loans so they are ineffective at increasing prices in consumer goods and thereby lowering interest rates does not affect inflation despite the massive cash injection.
    - penagwin 7y ago
      > injecting money into the economy by lowering interest rates But there's still interest rates? People still lose money by taking out a loan to buy a car. The reason nobody takes a loan for groceries is because groceries are cheap! There's 0 point in taking a loan for groceries unless you literally have no other money. Meanwhile many people can't afford to buy a car/house with cash, so they're forced to take a loan (and lose money in the long run)
    - kgwgk 7y ago
acd 7y ago
Negative interest rate will increase house asset prices as you will get money to loan. When there will be inflation due to outside forces a lot of home owners will have loans under water. The banks will be saved and there will be new regulation promising never again. Until the next bank crisis for different reason and so on.
- nabla9 7y ago
  I think you get the effect wrong. Notice that these are fixed rate loans: >0-year deal at -0.5%, while another Danish bank, Nordea, says it will begin offering 20-year fixed-rate deals at 0% and a 30-year mortgage at 0.5%. Increasing inflation would help those who have taken fixed rate mortgage loan because the real value of their loan will decrease faster.
  - acd 7y ago
    Thanks insightful comment. Increasing inflation will help pay of the loan as it will get lower through inflation. I personally think central banks have not understood that lower interest rates decreases inflation rate. Ie normally and historically central bank would try to increase inflation by lowering interest rate and thus how many have jobs. But jobs are now done automatically by software robots and that get cheaper by lower interest rate to invest in. But central banks thinks lower interest rate will increase inflation.
    - nabla9 7y ago
      The problem is not that lowering the interest rate has stopped increasing inflation, it's that central banks can't lower real rates enough. They are facing so called zero lower bound problem: https://www.investopedia.com/terms/z/zero-bound.asp https://www.investopedia.com/terms/z/zero-bound.asp This is called liquidity trap. You can set the interest rate little bit below zero, but you can't go significantly below zeor or banks just start storing cash in vaults (it becomes economically viable to physically store vast amounts of cash). You can actually think these zero or negative rate mortgages as bank's way to store capital. I don't think the root cause is financial or monetary policy. Developed countries are aging and their economic dynamics is fundamentally changing and they become prone to having secular stagnation. Japan led the way, Europe and the US will follow.
trilila 7y ago
North European countries are a template of success. And this is just another example of it.
_bxg1 7y ago
Is this good or bad? I don't understand how this can happen unless money itself loses nearly all value (i.e. storing the paper isn't even worth it, like in Germany after WWI). Can someone explain further?
- planteen 7y ago
  It doesn't mean the paper is worthless. On the contrary, the paper is more valuable than many other investment means. You are effectively paying a bank to guard your money with a negative rate, which makes sense. Guarding and protecting currency is not an easy task for an individual or business. Negative interest rates are supposed to spur investment elsewhere. However, negative rates have not led to the desired economic expansion in places like Japan that have had them for years. Inflation is very low in Denmark, near a deflation point, which is generally considered bad. The bank is trying to spur inflation with these negative rates.
  - AJ007 7y ago
    It will be interesting to see what happens if the US ends up with negative interest rates. Japanese and EU banks won’t have assets they can buy to get yield from, nor will the US. One could consider something like a Gold ETF where a percentage of the gold is sold every year to pay for the cost of storage as a negative interest rate cash alternative. You lose money every year too, but central banks can’t print it.
- SilasX 7y ago
  Money losing its value would be even worse for negative-nominal-rate lending. In a high/hyperinflationary environment, you'd look to hold easily stored goods that maintain their real value, and thus cancel inflation. What would explain the current scenario, where lenders will lend at negative rates, is: a) investing opportunities suck, and b) they can't reliably hold their dollars/kroners anywhere cheaply.
  - _bxg1 7y ago
    So in a hyperinflation scenario, money could be losing value faster than the negative interest rate, so you're basically paying someone else to take on that risk/loss. That makes sense, although another commenter said inflation in Denmark is very low right now, so it doesn't seem to apply here.
xivzgrev 7y ago
Woo!! Give me one of those negative interest mortgages here in the US for my house - I’ll gladly pay some points for it. What a world we live in.
bawana 7y ago
Why doesn’t the danish govt just print more money? Although part of the eu, they opt out of the monetary policy and still use the kroner. OTOH, how much of the eu debt does Denmark own— and vice versa. If they affect the kroner-euro exchange rate then they could lose money if it moves the wrong way.
- useerup 7y ago
  This situation (negative interest rate) occurs because there is a capital surplus. This happens because investors a wary of putting too much of their capital in stocks. Nobody knows what Trumps trade wars will lead to, so that's a significant risk factor for stocks. Consequently, investors look for other places to put their money until the uncertainties gets cleared up. Preferably somewhere safe - meaning not necessarily in a bank as banks can fold. Danish real-estate bonds fits that: The Danish real-estate market is generally considered sound. Furthermore, Denmark has a declared policy of closely following the Euro. The DKK has to be within a narrow band of 2.25% (IRRC) of the Euro. Having followed this policy ever since the EMS disbanded, investors generally trust this commitment. Which means that until Trump cleans up the disturbance he has created, investors will flee stocks and look for safe bonds, to the extent that lenders/investors will actually pay for safe investments. While attractive for lenders, it is a sign that something is very wrong with the economy. In a healthy climate money would flow to the stock market.
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248 points by neka 7y ago

aszantu 7y ago

what does that mean for poor people, does someone know? Can someone explain?

enra 7y ago
Poor people don't always have the means to save to afford the 10-30% down payment, so they cannot benefit from the cheap mortgage rates.
- joeyrideout 7y ago
  On the other hand, the banks are basically transferring wealth to the middle class (or anyone who can afford a mortgage) by paying them to borrow money.
- msh 7y ago
  In Denmark the required downpayment is 5%, up from 0 a few years ago.
  - fuzz4lyfe 7y ago
    Same in the US effectively. You will have to pay extra for mortgage insurance but I think the 20% notion is long dead.
collyw 7y ago
House prices will remain artificially high so they won't be able to afford one.
UnFleshedOne 7y ago
Poor people are screwed up regardless -- if rates are high, they can't afford payments, if rates are low, prices rise and they still can't afford payments. Not to mention getting downpayment. Workaround: don't be poor.
- dsfyu404ed 7y ago
  The down payment is the hardest part. "Just barely able to make payments" people are better off when rates are high because that depresses prices resulting in a lesser dollar amount for whatever the down-payment is.
- davidw 7y ago
  Do rising prices spur the construction of more homes in Denmark?
  - scandinavian 7y ago
    Seems pretty steady: https://i.imgur.com/wF6PCnU.png https://i.imgur.com/wF6PCnU.png 2019 is not over yet, so maybe it's a little higher this year. This is only for "parcelhuse", which wikipedia defines as: "Single-family detached home".
    - davidw 7y ago
      Homes come in a lot of shapes and sizes though - in Italy where I lived for a number of years, it's pretty common for people to live in a flat in a 4/6/8/whatever unit building, either as owners or renters. Depending on where demand is, I'd expect more of that sort of thing too, if it's allowed. In the US, it is forbidden to build those kinds of homes in large areas of our cities.
      - scandinavian 7y ago
        https://i.imgur.com/2iCJllW.png https://i.imgur.com/2iCJllW.png Here is the graph for multistorey apartment buildings. I'm not smart enough to interpret what this means. In the big city I live in in Denmark, most new apartment buildings are luxury apartments and expensive as hell, so I don't think they are a result of rising house prices.
        davidw 7y ago
        In general, new construction is expensive, but if you cut off that supply, people with money just bid up prices on older housing. Looks like the graph kicked up in response to something... that's good, I guess.
chvid 7y ago
For poor people it means that your rent continues to rise, house prices become further inflated and you will still pay massive interest rates if you get a consumer loan.
- msh 7y ago
  In Denmark the rents are not free market so they can't just rise with house prices.
  - tom_mellior 7y ago
    What can they rise with? Some official inflation rate? Does the calculation of that inflation rate include house prices?
    - msh 7y ago
      There are some details here: http://www.rentingindenmark.com/prices-and-rent/ http://www.rentingindenmark.com/prices-and-rent/
  - chvid 7y ago
    There is no rent control for buildings built after 1993.
    - msh 7y ago
      There is not strict rent control but that does not mean that the landlord can increase the rent as he sees fit.

apo 7y ago

This is all the more surprising given that inflation in Denmark is running ~1%/year. That means the bank is absorbing a real loss of 1.5%/year on the deal. Meanwhile, the housing market is roaring: https://tradingeconomics.com/denmark/housing-index https://tradingeconomics.com/denmark/housing-index It would be one thing to see negative rates in a declining property market and/or in a deflationary environment. However, negative rate mortgages are happening in what looks like a normal economy with low inflation and red-hot housing market. Somebody is very wrong about one or more of the following: - the future direction of the housing market - the future direction of interest rates - the future direction of inflation Edit: Google translate sheds some light. It appears that the Danish equivalent of "points' clouds the picture: > Total repayments before tax DKK 277,392 (on a DKK 250,000 loan) - of which total interest and contributions DKK 8,264 changes in the exchange rate will affect the size of the amount paid out. https://translate.google.com/translate?hl=en&sl=auto&tl=en&u=https%3A%2F%2Fwww.jyskebank.dk%2Fbolig%2Fnyheder%2Frealkredit-med-negativ-rente https://translate.google.com/translate?hl=en&sl=auto&tl=en&u... Low, but not negative.

kebman 7y ago
As far as I know, fees and charges on the loan make it about 2% anyway. Still a pretty cheap loan, I'd say.
- apo 7y ago
  Good point - updated answer with a link. Hopefully there's a better one out there.
collyw 7y ago
>That means the bank is absorbing a real loss of 1.5%/year on the deal. (As I understand it) the Eurobor rate is negative (the rate that the central bank lends to the other banks), so its unlikely that the bank are taking the hit directly.
- zajio1am 7y ago
  Euribor is not a rate that central bank lends to other banks, it is a rate commercial banks lend between themselves. ECB has its own rates (e.g. deposit facility, marginal lending facility for overnight deposits and loans).

kebman 7y ago

Here's the actual bank source, in Danish: https://www.jyskebank.dk/bolig/nyheder/realkredit-med-negativ-rente https://www.jyskebank.dk/bolig/nyheder/realkredit-med-negati...

0x0 7y ago

The effective interest seems to be above 0% though. The linked FAQ shows calculations where the total amount paid back is more than the total loan amount. Plus some talk about some kind of exchange rate(?) seems like this could be even riskier than normal?

nabdab 7y ago
The “Exchange rate” is the kurs(Danish) when the loan is for instance at kurs95 that means you only get 95% of the loaned amount. Effectively the investor gets a bigger principal than was actually loaned. Depending on invester pressure the kurs goes up, but It’s typically close at 100, and a lower rate loan is then opened up, since investing in a kurs100+ loan means taking an emidiate hit on the principal owed, which is bad for investors even if interests pay back the gap over time. And true, even with negative rate this loans kurs plus fixed costs still mean you are still paying the bank more than they are loaning you.
- nybble41 7y ago
  > Effectively the investor gets a bigger principal than was actually loaned. This difference between the amount loaned and the amount paid back over the life of the loan is commonly referred to as "interest". It really feels like they're just playing semantic games here. Any proper comparison of APRs would include both components. A true "negative interest rate mortgage" would be one where the bank pays you to borrow money, with the total amount borrowed being greater than the total amount paid back to the bank.

sleepysysadmin 7y ago

Not the world's first at all. https://tradingeconomics.com/switzerland/interest-rate https://tradingeconomics.com/switzerland/interest-rate Switzerland has been negative for years. Negative interest rates mean only 1 thing. The central bank is 100% confident that they are on the brink of deflationary spiral; much like Greece or Japan. This is all connected: https://news.ycombinator.com/item?id=20615403 https://news.ycombinator.com/item?id=20615403 https://news.ycombinator.com/item?id=20654624 https://news.ycombinator.com/item?id=20654624 https://tradingeconomics.com/canada/households-debt-to-income https://tradingeconomics.com/canada/households-debt-to-incom... When you are above 100% disposable debt to income. It means you must stop spending or your debt continues to increase. 170% is worse than the USA's financial crisis. Other countries like Australia are up around 200%. We have reached a long term debt cycle. We are about to have one of the worst recessions in a very long time OR depression.

ferzul 7y ago
been told I should worry about it for years now, but Australia's economy hasn't broken yet (it's weak, but that just means it's doing better than comparable nations but less than what it could be if we weren't being mismanaged by the most incompetent government this side of the black stump). how can I rely on a forecast that is eternally bad? I guess the economy will turn sour eventually, but I can't rely on a prediction that's always bad news since I'll miss all the good.
- sleepysysadmin 7y ago
  >been told I should worry about it for years now There was people mid financial crisis who were still denying the recession. There are tons of people who are saying we are going to have a recession during market highs. >but Australia's economy hasn't broken yet (it's weak, but that just means it's doing better than comparable nations but less than what it could be if we weren't being mismanaged by the most incompetent government this side of the black stump). I'm not Aussie; love Australia though. Politics aside, that's the thing people don't understand right before a debt cycle. Housing prices go sky high, car manufacturing dies, debt becomes tremendously cheap, manufacturing isms crash or contract, prime rates usually just went up, unemployment at historical lows. Literally all these indicators are pretty strong indicators and ALL of them are happening. >how can I rely on a forecast that is eternally bad? I guess the economy will turn sour eventually, but I can't rely on a prediction that's always bad news since I'll miss all the good. That's more a perspective. If you watch CNBC, they literally didn't believe the financial crisis was happened and it has been a bull market since forever. Zerohedge on the otherhand will have an article a day explaining how society's downfall is upon us. The important thing to understand is that literally nobody has a clue what's going to happen. We may never have another recession; ETFs and passive nature of investing could lead to markets just being completely stable from now on. Bitcoin could be the one picking up all the volatility, leaving the stock markets stable. Personally I think the debt cycle is immutable. One person's spending is another person's paycheque. When the automotive sector has basically started laying off people because people aren't buying cars; and it's happening to all Euros, Japanese, and North America car manufacturing companies are all laying people off. That's the beginning of the cycle downturn.

ptah 7y ago

this is pretty awesome. hopefully it spreads across europe

buboard 7y ago
this isn't free money
- martin_bech 7y ago
  It actually is.. any morgage below infation, is free money..
  - gruez 7y ago
    It's not. Since home prices are linked to interest rates (prices go up/down depending on interest rate movements), all that's going to happen is that home prices will go even higher. In the end your monthly payments is going to be the same.
  - buboard 7y ago
    You really think a for-profit bank would give more than it takes?
    - useerup 7y ago
      The bank takes it's share in the form of fees. The negative rate is simply because the money market sees negative rates on the 5-10 year horizon. The bank simply passes the rate of the money market on to the consumer: > Høegh said Jyske Bank is able to go into money markets and borrow from institutional investors at a negative rate, and is simply passing this on to its customers. Negative bond rates happen when there is a surplus of capital looking for "safe havens". Some investors are willing to pay to have money placed safely for a number of years. The Danish real-estate bonds are regarded as a very safe haven.
  - nabdab 7y ago
    This loans effective cost is above inflation. Inflation is in the 1-2% range and this is net at 2.1% There’s no free money just flashy marketing.

chvid 7y ago

Danish mortgage bonds are effectively guaranteed by the Danish state and there are only a few actual government bonds in circulation. The interest rates go below 0 because investors don't trust banks with their money.

olau 7y ago
> Danish mortgage bonds are effectively guaranteed by the Danish state I don't think that's true? Can you explain what you mean? It's probably true that a total collapse won't be tolerated, just like a total collapse of the banking sector wouldn't be tolerated.
Someone 7y ago
”The interest rates go below 0 because investors don't trust banks with their money.” If investors didn’t trust banks, they would demand high interest rates when borrowing banks their money, just as they demand higher interest from those who want to make smaller down-payments on houses, or on credit card debts. Looking at https://www.investing.com/rates-bonds/european-government-bonds https://www.investing.com/rates-bonds/european-government-bo..., many European countries (even Spain and, short-term, Italy) can borrow money from the market at negative interest rates. That must mean those borrowing them money must be confident they will get that money back (not that surprising, given that the ECB keeps printing money)

jjoergensen 7y ago

Buying a house means taking over a payment and tax liability, it's not just about owning and controlling an asset. Confidence in the financial system is apparently so low that someone is willing to pay you fictitious money now in return of fewer actual cash in the future.

spaceflunky 7y ago
What am I missing here? why are they doing this? There has to be some other gain somewhere else.
- novaRom 7y ago
  The gain is they will loose less than borrowers.
- Traster 7y ago
  It's fixed for 10 years. So yes, it's underperforming right now, but the fact that the yield curve has inverted gives them good reason to believe that there's going to be a recession in the next 10 years, so actually this is a relatively good return compared to losing money in the stock market or losing even more by buying the 10 year govenrment bond which right now is paying -0.58%.
  - spaceflunky 7y ago
    why can't they just sit on the money? Wouldn't that perform better?

kgwgk 7y ago

Not really. “As a result, oddities now abound. Danish lender Jyske Bank last week issued a 10-year mortgage bond at an interest rate of minus 0.5 per cent, meaning homeowners are being paid to borrow.” In fact the providers of the capital will pay the bank for those mortgage-backed bonds (they get a negative yield). The bank will get some spread from the client, who will also pay. https://www.google.ch/amp/s/amp.ft.com/content/820e3aac-ba1a-11e9-8a88-aa6628ac896c https://www.google.ch/amp/s/amp.ft.com/content/820e3aac-ba1a...

NKCSS 7y ago
Don't forget the mortage runs for 30 years and after 10 years, you are forced to pay the rate at that moment... so in the end, it will be ok :)
- adamlett 7y ago
  There no rule that the mortgage will run for 30 years. It’s just what most people choose. But there’s nothing stopping anyone from paying back the entire mortgage in 10 years.
  - megaremote 7y ago
    > But there’s nothing stopping anyone from paying back the entire mortgage in 10 years. Apart from not having the money.
  - Phillipharryt 7y ago
    I can't find all the fine details on this loan, but there are definitely loans that stop you from prepayment, or at least have a penalty associated with them. These penalties can be pretty large and definitely are a reason not to pay back the entire mortgage before 10 years. In this exceptional case I'm assuming there is a prepayment penalty for a large portion of that 10 year fixed rate period.
    - systemtest 7y ago
      Those prepayment fines are basically what the bank is losing out on you. If you have a 3% mortgage and the current rate is 2%, then the bank would lose out 1% for the current mortgage period. That's the penalty.

devoply 7y ago

We need to see more of this so we can transfer wealth from the rich to the poor more effectively and get them to invest in the economy.

nabdab 7y ago
More money is loaned to the rich than is to the poor. So this is giving more money to the rich than it does to the poor.
benj111 7y ago
Is that necessarily the case? I as a home owner would be interested for a remortgage to stick in the stock market (or even a risk free investment). Not really a poor person option though. This would presumably just inflate the/a housing bubble, which doesn't seem like it would inherently help poor people, you cant really liquidate the asset as you need to live in it. Second homes on the other hand....
opportune 7y ago
Good luck getting a negative interest rate loan as a poor person

jjazwiecki 7y ago

Just listened to this Bloomberg podcast, where they interviewed Viktor Shvets on the meaning/implications/future of negative interest rates: https://www.bloomberg.com/news/audio/2019-08-09/what-negative-interest-rates-mean-for-the-world-podcast https://www.bloomberg.com/news/audio/2019-08-09/what-negativ... > He argues that undermining the ’time value’ of money–or the principle that money available now is worth more than money in the future because you can use it to earn additional money–won’t lead to economic growth. In fact, he says, negative rates are going to end up leading to a rethink of modern capitalism and political society once people realize they have big consequences.

klipt 7y ago
Isn't that also why economists think excessive inflation is bad? Because it undermines the "time value of money"? So to avoid inflation, instead of printing money, we lower interest rates. But once interest rates go below 0, that also undermines the time value of money. Oops.
- zaroth 7y ago
  Lower rates cause increased inflation. Rates are lowered by increasing the price of bonds, by buying them, e.g. "printing money".

jonplackett 7y ago

Can someone explain simply how they make money doing this? Or how the institutional investors they mention make money?

azinman2 7y ago
They borrow the money on money markets from people who will lose even more, and you get some of the upside as well.
martin_bech 7y ago
Ill try.. danish morgages are based on bonds, just like government bonds, but realestate instaed. So the issuer just takes a small cut, dosent matter for them if rates are 10% or negatve 1%, (they take about 0,6%). Now who buys the bonds then and “loose” money? Mostly institions, pensionfunds, corporations and normal investors. They take on theese investors, because they have to.. rates in banks are even lower (even more negativ), and deposits are only insured for about 100.000euro. These bonds, while negative, are more secure, and less negative.
- jonplackett 7y ago
  Thanks, makes sense. Well at least the explanation does, but the world is still crazy!
- joshuaheard 7y ago
  Why don't they buy gold or some other asset that does not lose money like this?
  - tlb 7y ago
    The cost of storing gold isn't zero. If you have $100M of gold, you have to prevent serious organized criminals from stealing it. That can cost $500k/yr (ie, -0.5% return) for 3 shifts of security and a vault, cameras, insurance, etc. Brinks will store it for you for 0.72%/yr. https://goldsilver.com/vault-storage/ https://goldsilver.com/vault-storage/
  - 7y ago

pontifk8r 7y ago

It seems like a (cynical?) way to turn today's overpriced real estate assets into a stream of payments. Someone purchasing a home for DKK 300K with no interest may think they're getting a deal, until they try to resell that home and find out they cannot sell it for more than DKK 240K.

klipt 7y ago
That would imply we're getting into a weird deflationary regime where money shrinks under negative interest rates, yet still buys more in the future!
- deleted 7y ago
  [deleted]
- Areading314 7y ago
  kind of the opposite of stagflation deflecitation
- imtringued 7y ago
  The idea of injecting money into the economy by lowering interest rates works but people usually only get loans for houses or cars. No one buys their groceries with loans so they are ineffective at increasing prices in consumer goods and thereby lowering interest rates does not affect inflation despite the massive cash injection.
  - penagwin 7y ago
    > injecting money into the economy by lowering interest rates But there's still interest rates? People still lose money by taking out a loan to buy a car. The reason nobody takes a loan for groceries is because groceries are cheap! There's 0 point in taking a loan for groceries unless you literally have no other money. Meanwhile many people can't afford to buy a car/house with cash, so they're forced to take a loan (and lose money in the long run)
  - kgwgk 7y ago

acd 7y ago

Negative interest rate will increase house asset prices as you will get money to loan. When there will be inflation due to outside forces a lot of home owners will have loans under water. The banks will be saved and there will be new regulation promising never again. Until the next bank crisis for different reason and so on.

nabla9 7y ago
I think you get the effect wrong. Notice that these are fixed rate loans: >0-year deal at -0.5%, while another Danish bank, Nordea, says it will begin offering 20-year fixed-rate deals at 0% and a 30-year mortgage at 0.5%. Increasing inflation would help those who have taken fixed rate mortgage loan because the real value of their loan will decrease faster.
- acd 7y ago
  Thanks insightful comment. Increasing inflation will help pay of the loan as it will get lower through inflation. I personally think central banks have not understood that lower interest rates decreases inflation rate. Ie normally and historically central bank would try to increase inflation by lowering interest rate and thus how many have jobs. But jobs are now done automatically by software robots and that get cheaper by lower interest rate to invest in. But central banks thinks lower interest rate will increase inflation.
  - nabla9 7y ago
    The problem is not that lowering the interest rate has stopped increasing inflation, it's that central banks can't lower real rates enough. They are facing so called zero lower bound problem: https://www.investopedia.com/terms/z/zero-bound.asp https://www.investopedia.com/terms/z/zero-bound.asp This is called liquidity trap. You can set the interest rate little bit below zero, but you can't go significantly below zeor or banks just start storing cash in vaults (it becomes economically viable to physically store vast amounts of cash). You can actually think these zero or negative rate mortgages as bank's way to store capital. I don't think the root cause is financial or monetary policy. Developed countries are aging and their economic dynamics is fundamentally changing and they become prone to having secular stagnation. Japan led the way, Europe and the US will follow.

trilila 7y ago

North European countries are a template of success. And this is just another example of it.

_bxg1 7y ago

Is this good or bad? I don't understand how this can happen unless money itself loses nearly all value (i.e. storing the paper isn't even worth it, like in Germany after WWI). Can someone explain further?

planteen 7y ago
It doesn't mean the paper is worthless. On the contrary, the paper is more valuable than many other investment means. You are effectively paying a bank to guard your money with a negative rate, which makes sense. Guarding and protecting currency is not an easy task for an individual or business. Negative interest rates are supposed to spur investment elsewhere. However, negative rates have not led to the desired economic expansion in places like Japan that have had them for years. Inflation is very low in Denmark, near a deflation point, which is generally considered bad. The bank is trying to spur inflation with these negative rates.
- AJ007 7y ago
  It will be interesting to see what happens if the US ends up with negative interest rates. Japanese and EU banks won’t have assets they can buy to get yield from, nor will the US. One could consider something like a Gold ETF where a percentage of the gold is sold every year to pay for the cost of storage as a negative interest rate cash alternative. You lose money every year too, but central banks can’t print it.
SilasX 7y ago
Money losing its value would be even worse for negative-nominal-rate lending. In a high/hyperinflationary environment, you'd look to hold easily stored goods that maintain their real value, and thus cancel inflation. What would explain the current scenario, where lenders will lend at negative rates, is: a) investing opportunities suck, and b) they can't reliably hold their dollars/kroners anywhere cheaply.
- _bxg1 7y ago
  So in a hyperinflation scenario, money could be losing value faster than the negative interest rate, so you're basically paying someone else to take on that risk/loss. That makes sense, although another commenter said inflation in Denmark is very low right now, so it doesn't seem to apply here.

xivzgrev 7y ago

Woo!! Give me one of those negative interest mortgages here in the US for my house - I’ll gladly pay some points for it. What a world we live in.

bawana 7y ago

Why doesn’t the danish govt just print more money? Although part of the eu, they opt out of the monetary policy and still use the kroner. OTOH, how much of the eu debt does Denmark own— and vice versa. If they affect the kroner-euro exchange rate then they could lose money if it moves the wrong way.

useerup 7y ago
This situation (negative interest rate) occurs because there is a capital surplus. This happens because investors a wary of putting too much of their capital in stocks. Nobody knows what Trumps trade wars will lead to, so that's a significant risk factor for stocks. Consequently, investors look for other places to put their money until the uncertainties gets cleared up. Preferably somewhere safe - meaning not necessarily in a bank as banks can fold. Danish real-estate bonds fits that: The Danish real-estate market is generally considered sound. Furthermore, Denmark has a declared policy of closely following the Euro. The DKK has to be within a narrow band of 2.25% (IRRC) of the Euro. Having followed this policy ever since the EMS disbanded, investors generally trust this commitment. Which means that until Trump cleans up the disturbance he has created, investors will flee stocks and look for safe bonds, to the extent that lenders/investors will actually pay for safe investments. While attractive for lenders, it is a sign that something is very wrong with the economy. In a healthy climate money would flow to the stock market.

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