Negative interest on consumer products such as mortgages; in our country we are not that far yet. But this week, the Danish bank Jyske announced that it would provide the world's first negative-rate mortgage. Can we count on such a bonus in the near future? Housing market economist Paul de Vries explains.
"Yes, you read that right. You can now get a fixed-rate mortgage with a term of up to ten years, the nominal interest rate being negative," the Danish bank writes to its customers. Negative mortgage interest is the opposite of positive interest. Danes do not have to pay interest on their mortgage, but receive money.
Danish mortgages become bonds
Free money, who doesn't want that? Yet that will not happen. Not in Denmark or in the Netherlands at all, says housing market economist Paul de Vries. De Vries is affiliated with Het Kadaster and the European Mortgage Federation (EMF). The housing market is completely different in Denmark, says De Vries.
"In the Netherlands you go to the bank, you borrow 2 tons and you pay that off slowly, with interest. In Denmark, your mortgage goes directly to the market and the debt is taken over by investors. That is only possible in Denmark, and nowhere else. Your mortgage in Denmark will become a bond. "
No free money for Danes
Home buyers in Denmark who borrow from Jysk and receive free money, that is too optimistic, explains the housing market economist.
"Suppose that your mortgage interest in the Netherlands is 1 percent. Then the actual interest is much lower, because the rest of the amount consists of surcharges, or fees. So it is theoretically possible that mortgages with negative interest have long been provided in the Netherlands. That you don't know if you take out a mortgage, because you still pay for these surcharges. " The word 'mortgage interest' that we use in the Netherlands is therefore incorrect, says the economist: it should be 'mortgage interest rate'.
That Danish model is unique, says De Vries. "I do not expect that there are negative mortgage rates anywhere else in the world because Danish banks are really different. Everywhere there is a rate that includes the surcharges."
There are additional costs
These surcharges are amounts of money for keeping the bank running, so for example housing and staff costs, risk surcharges, own funding - so the money that a bank pays to borrow money itself from a central bank - and rate surcharge, so that the bank covers its own risk of not getting a loan back.
These amounts are in addition to the mortgage interest. So that negative mortgage interest rate in Denmark is not negative in practical terms: these costs are on top of that.
Money must flow
The Danish central bank wants money to continue to roll, because that should have a positive effect on economic growth and the development of prices of goods and services. So they make borrowing money cheaper for banks. If the money lent to Danish banks is hoarded for too long, they will be fined, so it is worthwhile for Danish mortgage lenders to provide loans with negative interest.
The Danish banks follow the example of the European Central Bank (ECB), which has been trying to reduce interest rates for years to boost the economy. They themselves do not borrow from the ECB, because Denmark falls outside the euro zone.
This situation cannot last long, De Vries says, because that causes inflation of the Danish krone.