Bank in Denmark will pay you to take out a mortgage. Yes, that’s right
- Years of easing by central banks hacked away at interest rates around world
- Borrowing costs are at or near rock-bottom in many major world markets
The world’s headlong dash to zero or negative interest rates just passed another milestone: A bank in Denmark is paying homebuyers to take out mortgages.
Jyske Bank A/S, Denmark’s third-largest lender, announced in early August a mortgage rate of -0.5 per cent, before fees. Nordea Bank Abp, meanwhile, is offering 30-year mortgages at annual interest of just 0.5 per cent.
Years of easing by central banks hacked away at interest rates around the world, distorting the traditional economics of lending and borrowing. This is most pronounced in Europe, where a composite home-loan rate across the euro area fell to 1.65 per cent in June, the lowest since records began in 2000.
While some regions have resisted the trend, borrowing costs are at or near rock-bottom in many major world markets. That’s boosted demand from homebuyers and spurred fierce competition among lenders for their business.
Here’s a snapshot of mortgage rates around the world:
U.S.
The average American 30-year mortgage rate is 3.6 per cent, the lowest since November 2016. A resulting surge in demand for homes sent total mortgage debt to $9.41 trillion in the second quarter, surpassing the peak reached during the 2008 financial crisis. Mortgage brokers, too, are rushing to keep up with demand for refinancing: Applications are running at a three-year high.
The benefits for home buyers are muted in cities such as New York and San Francisco, however, because the boom has led to a shortage of affordable homes.
France
French mortgage rates reached a trough of 1.39 per cent on average in June, according to Bank of France data. The country’s banking industry is extremely competitive: Many lenders have jockeyed to lure customers with cheaper offers.
Germany
German mortgage rates also reached historic lows this year, with the average 10-year loan currently under 1 per cent. Some lenders are offering rates around 0.5 per cent, according to Interhyp, a comparison website.
The prospect of further declines in benchmark borrowing costs could drive many mortgage rates toward zero. This may have a limited impact on the residential market, however – only 46 per cent of Germans are homeowners, compared with an EU average of 69 per cent.
U.K.
Mortgage rates in the U.K., by contrast, have been almost unchanged this year, despite a drop in overall borrowing costs amid a worsening economic outlook. The rate on a two-year fixed mortgage fell just 8 basis points from January to July, compared with a 38 basis-point drop in two-year swaps.
One reason for this, says Mark Gilbert of Bloomberg Opinion, is that the Bank of England’s regulatory arm has discouraged lenders from trying to win market share by easing standards because it’s concerned about their financial strength.
Hungary
Mortgage costs are fairly high in Hungary because regulators steered almost all borrowers away from cheaper (but less secure) floating-rate loans. A 10-year fixed-rate mortgage is currently around 5 per cent, compared with money-market rates near zero.
The attraction of security was heightened by memories of a fashion for mortgages taken out in Swiss francs before the financial crisis. The subsequent plunge in the forint against the franc hammered as many as 1 million Hungarians.
Greece
Mortgage rates have actually risen in Greece, burdened by sovereign and corporate debts. The average floating-rate home loan was 3.08 per cent in June, an increase of 11 basis points from a year earlier.
Greek banks’ mountain of soured loans means they have become wary of extending new credit, even when secured by a house.
Hong Kong
Mortgage rates are also climbing in Hong Kong as the political crisis weakens the appetite for loans. Both HSBC Holdings Plc and Standard Chartered Plc increased effective rates by 10 basis points to 2.48 per cent in July, according to Bloomberg Intelligence.
