Geo-Economics and Politics

This Danish bank is offering mortgages with a negative interest rate

A waitress poses with some coins in front of a cash-box of Danish crowns in a pub in Copenhagen, January 22, 2015. The Danish central bank cut its key policy rate on Thursday for the second time this week to defend the crown's peg to the euro after the European Central Bank unveiled a stimulus package that weakened the single currency.  REUTERS/Fabian Bimmer (DENMARK - Tags: BUSINESS) - GM1EB1N0K0J01

It's good to give. Image: REUTERS/Fabian Bimmer

Will Martin
Markets Reporter, Business Insider UK
Share:
Our Impact
What's the World Economic Forum doing to accelerate action on Geo-Economics and Politics?
The Big Picture
Explore and monitor how Real Estate is affecting economies, industries and global issues
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale
Stay up to date:

Real Estate

A bank in Denmark is offering borrowers mortgages at a negative interest rate, effectively paying its customers to borrow money for a house purchase.

Jyske Bank, Denmark's third-largest bank, said this week that customers would now be able to take out a 10-year fixed-rate mortgage with an interest rate of -0.5%, meaning customers will pay back less than the amount they borrowed.

To put the -0.5% rate in simple terms: If you bought a house for $1 million and paid off your mortgage in full in 10 years, you would pay the bank back only $995,000.

It should be noted that even with a negative interest rate, banks often charge fees linked to the borrowing, which means homeowners could still pay back more.

Image: Bloomberg

"It's another chapter in the history of the mortgage," the Jyske Bank housing economist Mikkel Høegh told Danish TV, according to the news website Copenhagen Post. "A few months ago, we would have said that this would not be possible, but we have been surprised time and time again, and this opens up a new opportunity for homeowners."

Jyske Bank's negative rate is the latest in a series of extremely low interest offers from banks to Danish homeowners.

According to The Local, Nordea Bank, Scandinavia's biggest lender, said it would offer a 20-year fixed-rate mortgage with 0% interest Bloomberg reported that some Danish lenders were offering 30-year mortgages at a 0.5% rate.

It should also be noted that negative rates have been available on short-term mortgage bonds in Denmark since May, according to Bloomberg; they have only just been made directly available to consumers.

"It's never been cheaper to borrow," Lise Nytoft Bergmann, the chief analyst at Nordea's home finance unit in Denmark, told Bloomberg.

It may seem counterintuitive for banks to lend out their money at such low rates — but there is a rationale behind it.

Financial markets are in a volatile, uncertain spot right now. Factors include the US-China trade war, Brexit, and a generalized economic slowdown across the world — and particularly in Europe.

Many investors fear a substantial crash in the near future. As such, some banks are willing to lend money at negative rates, accepting a small loss rather than risking a bigger loss by lending money at higher rates that customers cannot meet.

"It's an uncomfortable thought that there are investors who are willing to lend money for 30 years and get just 0.5% in return," Bergmann said.

"It shows how scared investors are of the current situation in the financial markets, and that they expect it to take a very long time before things improve."

Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Geo-Economics and PoliticsEconomic Growth
Share:
World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

European financial institutions are confronting new challenges. Here's how

Kalin Anev Janse and Kim Skov Jensen

May 22, 2024

About Us

Events

Media

Partners & Members

  • Join Us

Language Editions

Privacy Policy & Terms of Service

© 2024 World Economic Forum