Well, speaking as the smallest of small business owners, I’m going to go be sick. If the canary in the coal mine had another smaller canary of its own, I would be the amoeba in that canary’s digestive track.
But question: shouldn’t this lead to real estate speculation in Denmark?
Keep in mind those rates are probably not fixed for the life of the loan, but indexed to some benchmark. 30 year fixed rate mortgages are pretty much a US only thing.
The rates are fixed (unfixed rated mortgages also exist)- These mortgages are effectively bonds that people looking for a “safe haven” for their money are willing to lend you, even at negative rates, because the danish housing market is seen as a relatively stable and safe market.
What is not fixed however, is the fee you have to pay the bank for “paying back the loan” so effectively you are still paying more than you borrowed.
Also, the value of the mortgages/bonds fluctuates (a bit like stocks), so atm, if you take out a mortgage with a negative rate at -0.5 at say 1.000.000 Krones you only get ca. 950.000.
I am danish by the way, and no expert at this, but, that is how I have come to understand how real estate mortgages work in Denmark and how negative rates are even possible.
Yes, why they are not buying tbills instead of negative interest on less secure assets is a mystery to me.
Buying power. 1.7% interest on a currency that inflates 2.3%/year means you have less buying power at the end of the year than -.5% interest on a currency that inflates 0%/year.
The tricky bit is predicting just how much any particular currency is going to inflate in a year.
That is a lot of if. Since they are on the Euro the fate of their inflation really isn’t up to them. My bet would be that the European central bank is not going to let the currency slip to 0% inflation or even deflation not with out a hell of a fight first. Having a flat or deflating currency is some really bad news for any economy so they will pull all the same tricks the feds do to keep a mild inflation.
It is a pretty pessimistic bid if you feel that the economy will not only start to fail but the measures the central bank takes can’t ameliorate it. After all this is not really a bet on the Danish economy so much as one on the German economy since they essentially drive the Euro.
But if you keep it in the local currency then you can decide along the way whether to pay back in the same currency or convert foreign currency. Of course the value of the ultimate outcome hinges on whether you have any interest in holding local currency. But if you do then you can win either way.
The krone isn’t quite pegged to the Euro. Under ERM II (European Exchange Rate Mechanism - Wikipedia), it’s supposed to stay within 15% of the parity grid rate:
A currency in ERM II is allowed to float within a range of ±15% with respect to a central rate against the euro. In the case of the krone, Danmarks Nationalbank keeps the exchange rate within the narrower range of ± 2.25% against the central rate of EUR 1 = DKK 7.46038.
The house prices here are already so high, that people are leaving for second tier cities. Interest rates have been at less than 2 percent for ever, so not really a factor. However, just because the rate is -0,5, doesn’t mean you get paid for buying a house, the banks just raise the maintenance fees etc.
I could see this run by American used car finance grifters. They’d subsidize 80% of the honest loans with the opportunity to foreclose on 20% of them and swoop in and steal the carcasses.
Of course, this might not work as well in Denmark, where the entire country’s economy isn’t currently the victim of a massive pump-and-dump scam being run by A Very Fine Grifter.
The interest rate on this loan might be negative, but the bank seems to be making money off it anyway. Someone over at Bogleheads tracked down the web page for the bank & ran it through Google Translate:
It costs to borrow DKK 500,000 with minus 0.5 per cent. at face value 10-year fixed rate loan with installment from Jyske Realkredit A / S with a total credit amount / disbursed amount of DKK 500,000, 40 quarterly installments. A debt rate, fixed, of -0.50%, a variable contribution rate of 1.00% at 60-80% mortgages and a pre-tax APR, 1.7%. Principal of DKK 529,590 incl. price loss at a rate of 97.55 and price cut at disbursement, grant fee, brokerage and registration tax to the state. First year average benefit before tax, DKK 4,742 / month. Total repayments before tax DKK 543,721 - of which total interest and contributions DKK 14,131 Changes in the exchange rate will affect the size of the amount paid. Claims for fire insurance of the mortgaged property.
If someone needs 500K to buy a house and ends up paying the bank almost 544K, they’re not getting paid to borrow the bank’s money, the bank’s getting paid. As usual, the devil is in the details.
Edited to add: I see karlhelvede up above explained how this works.
clean water, yes, toilets and TP you can use dirty water in a squirt bidet and be very happy…
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