Danish bank launches negative interest mortgage

A bank in Denmark has launched a mortgage with an interest rate of minus 0.5 per cent in what is believed to be a world first.

Jyske Bank is offering customers the choice between a seven or ten-year fix with a negative rate, The Guardian reports.

Rather than actually being paid to borrow money by the bank, customers instead see their outstanding mortgage debts reduced by more than the sum they repay each month.

But on its website Jyske Bank explains that home buyers will not actually make money from borrowing due to charging arrangement fees.

Jyske’s housing economist Mikkel Høegh describes the situation as “almost absurd” and says that he can “hardly understand” how it is possible.

According to an illustration on the bank’s website a borrower who took out a 250,000 Danish Krone mortgage — equivalent to around £31,000 — would repay a total of 277,392 Krone over ten years after costs, or £34,397. 

If the same borrower took out the seven-year deal they would repay 274,937 Krone or £34,092.

Another Danish lender, Nordea, is to offer 20-year home loans at 0 per cent.

The Danish central bank’s official lending rate is current 0.05 per cent, while the European Central Bank’s main rate is 0 per cent and in Sweden the official rate is already negative at -0.25 per cent and in Switzerland it is even lower at -0.75 per cent.

According to the Financial Times, bonds worth $15tn are currently trading with negative yields, which has created the bizarre situation whereby some banks such as Jyske can borrow so cheaply that they are able to offer flat or even below-zero mortgage rates.

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