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My friends in Geneva tell me that this has been a thing there for a long time. It has some pretty bizarre effects on the market (according to my friends): 1. H

• nugget 6y ago
  Another potential consequence is that if the price of your house falls more than the down payment you invested, you may be incentivized to simply walk away. The price could fall for any number of reasons: a market crash and country-wide depression widely impacting many people, or an individual owner who simply did no maintenance/upkeep over a period of years and the property is in disrepair. The disrepair scenario is common among elderly homeowners in the US.
  • CogitoCogito 6y ago
    Can Danes just walk away from their loans simply returning the home? I believe that's true in the US, but I don't think that's universal.
    • lotsofpulp 6y ago
      Even in the US, only 12 states are “non recourse”. https://www.financialsamurai.com/non-recourse-states-walk-away-from-mortgage/ https://www.financialsamurai.com/non-recourse-states-walk-aw...
    • danhak 6y ago
      It's not true in all of the US (recourse vs. non-recourse). In all but 12 states, a lender can come after your other assets if the value of your collateral does not satisfy your debt.
    • gamblor956 6y ago
      https://www.forbes.com/advisor/loans/recourse-loans-vs-non-recourse-loans/ https://www.forbes.com/advisor/loans/recourse-loans-vs-non-r... Home mortages are recourse loans in all but 12 states (Alaska, Arizona, California, Connecticut, Idaho, Minnesota, North Carolina, North Dakota, Oregon, Texas, Utah and Washington).
      • CogitoCogito 6y ago
        Thank you to you and the others responding for the clarification. I guess I just took my California experience and incorrectly assumed it was similar in the rest of the US.
      • anonAndOn 6y ago
        This had a profound effect on house prices in Arizona back in 2009-2010. The Phoenix market, in particular, was flooded with borrowers who walked away when they had negative equity.
    • joakleaf 6y ago
      No. You have to pay the loan back. You cannot just walk away. I know several people in Denmark that were “stuck” with the house they were in after the price drops from the 2008 crisis until prices rose above the mortgages again. You can probably make a deal with the bank somehow at higher interests, but they’ll want there money back. You can also declare bankruptcy, but that is not simple and not without long term consequences I think.
      • chenster 6y ago
        Bankruptcy has a 7 years bad credit sentence in US. You are good as new after that. Not sure that's the case with other countries.
        • distances 6y ago
          Many countries don't have the concept of private bankruptcies at all. You may effectively be on the hook for the rest of your life if you really messed up. Don't know about Denmark though.
          • nelgaard 6y ago
            In Denmark you cannot just declare personal bankruptcy. You can ask a court to declare you bankrupt, but there are many requirements and rules. And the court may reject your application.
        • marvin 6y ago
          In Norway, personal bankruptcy requires an application to the debt enforcement office (a local government authority). If the application is accepted, the debtor gives up all their assets and submits to paying all of their earnings towards their debt, for five years. A politically determined subsistence sum is all they get to keep for themselves. After five years, the agreement ends and the debt is cleared. Each person can only apply once in their life. Any future runaway debts cannot be cleared without the consent of each creditor, which probably won't happen. Unsure how this is done in the rest of Scandinavia.
  • usrusr 6y ago
    Disappearance of those "0%" things would already be enough for prices to collapse once they have sufficiently adapted to the 0% situation. I guess the winner is, unsurprisingly, whoever owned the land before.
• oblio 6y ago
  I wonder if Japan is similar. Haven't they had deflation for close to a decade?
  • chenster 6y ago
    In asia, generally down payment is very low, and even low interest that could expand up to 30, 40 years to pay back. The home price is usually much lower than western countries with a few exceptions like Hong Kong, Shanghai, etc.
    • oblio 6y ago
      "Asia" is very vague and not helpful, unfortunately. I was asking about Japan ;-)
  • hocuspocus 6y ago
    The housing market in Japan is very different: - There's no shortage, rather the opposite, even in urban areas that are still growing in population. - Housing value typically only depreciates over time. In Switzerland, real-estate mostly belongs directly or indirectly to pension funds. This creates all sorts of wrong incentives.
• SoSoRoCoCo 6y ago
  > 2. Since house prices are now super high, only people who have saved up a big down payment can actually buy a house. Isn't this what is happening right now in the US, that the down-payment is one of the barriers, since less than 10% (forget 20%) down has huge penalties long-term?
  • jcomis 6y ago
    No, not really. People are still readily getting loans with far less than 10%.
    • tibbon 6y ago
      In competitive markets, the issue isn't getting the loan - it's getting an offer accepted. Sellers will heavily favor a cash offer, as it's faster and far more assured of going through. One strategy I've heard about people doing is to take a pile of cash, acquire the property, and then refinance it pulling out 80% of what they put in so that they can both have a mortgage and have a stronger buying position. Add in things like dropping inspection, no contingencies, etc... and it gets really hard for many first time home buyers to compete. Additionally, coming in with an FHA 3.5% down, vs someone with a traditional 20% down - the sellers will favor the 20% as again it's less paperwork, easier, faster, and more certain to go through if the assessment is off by a few %. I had no idea about this before trying to buy a property in New England. So much of traditional advice doesn't include these details. What's weird about it to me is that this is one of the few places in US consumer markets where the seller cares deeply about your method of purchase and where the money came from. Buying a used car? They don't care if it's cash, credit, loan, etc generally. Hell, most car dealers want you to use a loan from them and would prefer that over cash in many ways. When you go to WalMart, they don't deny you buying something for using a credit card vs cash.
      • SoSoRoCoCo 6y ago
        > this is one of the few places in US consumer markets Did you mean geographically? Or temporally? because if the second, I'm pretty sure that is a direct legal consequence of the 2008 housing meltdown that boned both sides of the lending equation.
• PoachedSausage 6y ago
  So, house price, Z = [Re] + [Im] Where Real part is down payment and Imaginary part is land price? Seriously though, this has been the situation in the UK for a long time. Today the down payment is equivalent to price of the house in the 1970's.
• patatino 6y ago
  Well, I can't talk about Geneva or Zurich because both cities are very expensive. But generally, prices are going up, the down payment is normally 20% of the price. This is one problem, another one is how they calculate the risk. The "law" is you have to be able to pay the mortgage at 5% and that 5% cannot be more than 1/3 of your income. So if you buy a 1.25m house and take a 1m mortgage 5% is of that is 50k, so your salary has to be 150k. Point 3) is wrong, they make still a lot of money with loans, a lot of people still take 10 year loans for somewhere between 0.6% and 1%.
  • jseliger 6y ago
    But generally, prices are going up This can be resolved any time cities want to build a lot more housing: https://www.theatlantic.com/ideas/archive/2021/01/anti-growth-alliance-fueled-urban-gentrification/617525/ https://www.theatlantic.com/ideas/archive/2021/01/anti-growt.... Outside of Tokyo: https://news.ycombinator.com/item?id=16704501 https://news.ycombinator.com/item?id=16704501, no or very few cities in the Industrialized world have chosen to simply build lots of housing, which will tend to bring prices down towards the cost of construction.
    • fredm-de 6y ago
      Sadly, it's not always that easy. A large amount of swiss property is owned by pension funds, which are legally limited in their possible investments. So increasing the supply of housing will also defund the pension funds.
    • izacus 6y ago
      Geneva is surrounded by mountains and a lake, it's hard to build more. Similarly for Zurich, there are significant hills around and most flat space is already built up.
      • cosmodisk 6y ago
        I think it's not just that but the fact that the country is literally packed. It's about 2/3 of my country's size,yet has 3 times more people. Haven't been to Switzerland but I can imagine most parks and other public spaces must feel quite full with people.
• ganeshkrishnan 6y ago
  >Banks turn away borrowers because they end up with too many loans on their books and no real incentive to get more Banks would never turn away borrowers even if there is 0 percent mortgage or even slight negative (where they have to pay borrowers for the loan). That's because these loans are then sold to investment banks and are packaged as CDOs (and swaps and synth CDOs and so on ad nauseam) . This was the whole subprime mortgage credit crisis. The stock market goes up as there are now more 'SPEs' (https://en.wikipedia.org/wiki/Special_purpose_entity https://en.wikipedia.org/wiki/Special_purpose_entity) being listed and more money being poured into stock markets. Banks usually don't keep the loans. They are sold off quickly for a higher profit.
  • yuliyp 6y ago
    Where is the profit on a 0% loan? Who would pay more than face value for a stream of payments going into the future?
    • mywittyname 6y ago
      Lenders make money on the currency exchange. This doesn't make sense for Americans because they use a single currency for everything, but in Europe, there is a benefit to having a revenue stream in a desirable currency which is appreciating relative to the Euro. To the buyer, the loan looks like 0% because the buyer pays back the loan in Franks or whatever. The bank, meanwhile, gave out a loan of X Euros, and is receiving payments in a currency whose aggregate value is X+Y Euros. Their profit is Y. There's also the opportunity to make even more money selling options backed by these payments. This is a completely valid means of making money, but it carries substantially higher risk than single currency lending. Which is probably the reason most banks don't want to carry too many of these on their balance sheets.
      • wrzuteczka 6y ago
        Where is that Y coming from? The rates of say EUR and CHF diverging?
• qppo 6y ago
  Point 3 sounds made up. Banks are in the business of lending, I can't really imagine a scenario where they have an incentive to lend less.
  • jwagenet 6y ago
    I imagine there is a lack of incentive to take on additional 0% loans unless legally required, due to the repayment becoming a loss for not even covering inflation.
  • oblongx 6y ago
    How does the bank make money when it's zero interest loan? Serious question, the article didn't mention anything about it. I'm sure it still costs a few bucks in fees to get the loan but isn't the interest where the real profit is?
    • coliveira 6y ago
      Banks don't make money on interest rates, but on spreads. They lend the money at 0%, but in Europe banks can borrow at negative interest rates.
      • tomatocracy 6y ago
        Some banks can borrow some of their funding requirements at negative rates for short periods of time. Banks fund themselves using a variety of sources - bonds and money market instruments (of various types), equity, deposits, past profits (which is really the same as equity) and various central bank mechanisms. Of those the only ones where there is a decent chance of funding at negative rates are bonds/money markets and central banks. Bank profits have been squeezed by negative rates precisely because they've been forced to pass on more of the rate reductions to borrowers than they've been able to recapture for themselves.
        • coliveira 6y ago
          But modern banks don't stay with a mortgage loan for long periods of time. Thanks to the "miracle" of derivatives, mortgage loans are repackaged and sold to other institutions, so the risk they carry is very small compared to the old times.
• matwood 6y ago
  > 1. House prices rise to the point where the down payment is essentially the price of the house. The house price itself becomes imaginary. What you are really worried about is the down payment. Yes and no. This is also true in all markets. No one really buys a house based on the price. They buy it based on the monthly payment (price - down payment and interest rate). The price alone is mostly irrelevant for the buyer. This means that for most people, the best time to buy a house is when interest rates are sky high since falling rates are easy to take advantage of in the future. High rates also mean the original principal is likely low.
  • saberdancer 6y ago
    But people sell houses based on price, not on the monthly payment. It's possible that high monthly payments reduce the ability to sell a house for a high price, but is this effect that strong?
    • matwood 6y ago
      Absolutely, which is why I said it's mostly irrelevant for the buyer. If the seller purchased in a lower rate environment, they may be in for a tough time. Down payments and equity can soften that blow a bit.
  • asiando 6y ago
    > The price alone is mostly irrelevant for the buyer. Sorry but wow. This is not the kind of comment I expect on HN, but rather from my uncle: “We got this new Lexus, it’s only $500/month!” “Yes, for 200 years”
    • matwood 6y ago
      People think of houses in 15/20/30 year loans, so yeah payment is what matters. Few people are fortunate enough to be able to buy their first house with a 15 year loan. Interest rates moving are big drivers on house prices because long loans are greatly impacted by small moves. Houses are nothing like cars. I haven't had a car payment in many years. I'm still a long ways from never having a house payment.
• treelovinhippie 6y ago
  This has been the case in Australia for decades now. Average house price is AUD$1M. Standard deposit is 20%. Government has just allowed first home buyers to get a mortgage on a 5% deposit. While that sounds great, it's obviously just encouraging more debt to flood the market and drive up prices. And of course the government doesn't give a shit about housing affordability. The standard practice here is to get at least two mortgages: one for the house you want to live in, and one for an investment property that you'll eventually sell to pay off your other mortgage. Sounds stupid right? Well, not when the government gives massive tax benefit handouts to property investors: 1. 50% capital gains tax discount. 2. Negative gearing: basically the losses on your investment property can be claimed as a tax offset against your other income. [1] https://en.wikipedia.org/wiki/Capital_gains_tax_in_Australia https://en.wikipedia.org/wiki/Capital_gains_tax_in_Australia [2] https://en.wikipedia.org/wiki/Negative_gearing_in_Australia https://en.wikipedia.org/wiki/Negative_gearing_in_Australia
• izacus 6y ago
  > My friends in Geneva tell me that this has been a thing there for a long time. It has some pretty bizarre effects on the market (according to my friends): One important difference between Geneva and Denmark though - Genevas extremely expensive housing market (in both purchase and rent prices) is driven by its geographical location. It's surrounded by mountains on most sides and sitting on a lake. This means there's pretty much no space to build more buildings to accommodate the influx of people moving there to work in science and politics. Geneva building prices were skyrocketing without those loans just because there was no way to build more.
  • l33tbro 6y ago
    Switzerland also has the highest level of household debt (which includes mortgages) in the world. Lending volume and price usually have a fairly linear correlation.
    • hocuspocus 6y ago
      The volume tied to mortgages is high compared to other countries because you can essentially keep 2/3rd of the debt forever, and even more if you indirectly amortize through your pension fund.
• ashtonkem 6y ago
  Typically speaking home prices tend to fluctuate based on interest rates, because home buyers actually purchase based on what they can afford on a monthly basis, not what the actual list price of the house is. I imagine at such low rates, the effect must be pretty strong though.