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Danish bank launches negative interest rate mortgage

theguardian.com

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Re: Danish bank launches negative interest rate mortgage

#31

Post by martin_bech »

collyw wrote: post #9
apo wrote: post #4

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 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 loo…

>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.

As I mentioned somewhere else, these loans, are based 100% on bonds, sold on the open market, so the issuer is not loosing money. The issuer “realkredit selskab” just gets a fee.

Who buys the bonds, could be anyone.. banks, pensionfunds, people who need to store money, in an “insured” way.

Re: Danish bank launches negative interest rate mortgage

#32

Post by olau »

olau wrote: post #29
apo wrote: post #4

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 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 loo…

Some background: In Denmark, mortgages for housing are handled by special real-estate lenders (realkreditinstitutter) who issue bonds and handles defaults. These bonds are considered to be very stable, about the same quality as state bonds, as the lenders will only lend up to 80% of the value of the house (an ordinary bank loan must be used for the remaining fraction) so can usually recover most of the money through…

And yes, the negative interest rate at the Danish central bank does translate to negative interest rates for deposits. Not yet for consumers, but corporate accounts have negative rates.

Re: Danish bank launches negative interest rate mortgage

#34

Post by olau »

chvid wrote: post #15

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.

> 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.

Re: Danish bank launches negative interest rate mortgage

#35

Post by martin_bech »

jonplackett wrote: post #27

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

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.

Re: Danish bank launches negative interest rate mortgage

#36

Post by msh »

enra wrote: post #3
aszantu wrote: post #2

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

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.

In Denmark the required downpayment is 5%, up from 0 a few years ago.

Re: Danish bank launches negative interest rate mortgage

#38

Post by msh »

chvid wrote: post #16
aszantu wrote: post #2

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

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.

In Denmark the rents are not free market so they can't just rise with house prices.

Re: Danish bank launches negative interest rate mortgage

#39

Post by jonplackett »

martin_bech wrote: post #35
jonplackett wrote: post #27

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

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…

Thanks, makes sense.

Well at least the explanation does, but the world is still crazy!

Re: Danish bank launches negative interest rate mortgage

#40

Post by pontifk8r »

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.
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