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Danish bank launches world’s first negative interest rate mortgage

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From: https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/articles/overviewoftheukpopulation/november2018

"In future years, the UK population is set to grow further still. The projected population surpasses 70 million in 2029 and reaches 72.9 million by 2041 – increases of 6.1% and 10.4%, respectively, from 2017."

"In mid-2017, the OADR of the UK was 289, which is up from 244 a decade prior. Without the planned re-balancing of the State Pension age, the UK’s OADR would be a projected 419 by 2041."

So the population takes 12 years (2017-2029) to increase from 66m to 70m, then another 12 years to add another 2.9M. So by 2050 it will be levelling off, which is only 30 years away. The effects of this slowing and the OADR almost doubling will be felt long before that. 

Edited by scepticus

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5 hours ago, Freki said:

At some point the lunacy of the wealth effect policies will be understood for being nefarious policies. 

That "nobody" loses mentality, keeping zombie companies alive, preventing social mobility will feed too much anger into the public. Reckoning is only delayed

It's utterly insane. They've managed to distort the economy so much that money no longer makes any sense.

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10 hours ago, GregBowman said:

Only if within a limited company after George Osbourne's changes if you are coming talking about houses other than your primary residence ie BTL ( tapering down at the moment )

Which is why hundreds of thousands of Buy to leech amateurs are f**** - rock and a hard place - they either pay up on a yearly basis - essentially unless they have paid off mortgage it’s unviable or put in a limited company where their capital gain will be crystallised and they will pay capital gains tax 

 

Low interest rates have greatly reduced the impact of s24, in fact the fall in mortgage rates since it was announced has completely negated it.

The BTL bandwagon may have stopped growing but it will stagger on for as long as mortgages are available at under 4%.  

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5 hours ago, PeanutButter said:

Japan has a completely different housing market and is in no way comparable.

Their population is decreasing.

They view houses as depreciating assets and regularly bulldoze them and build new (primarily pre-fab) ones.

They can’t even give old houses away because of burdensome property taxes.

The nation is still collectively recoiling from the insane property boom/crash that burned a lot of people. They have long memories and culturally take ‘lessons’ to heart.

I’m not saying it won’t happen here, I’m saying Japan is no guide. 

And while Japan has had near zero interest rates for the best part of 30 years, it has not had negative mortgage rates.  I think that they are about 1% at the moment, they have been quite a bit higher in the past.

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Just now, Ah-so said:

And while Japan has had near zero interest rates for the best part of 30 years, it has not had negative mortgage rates.  I think that they are about 1% at the moment, they have been quite a bit higher in the past.

Exactly (so far). It's just not a country we can look to for parallels or predictions of our future, especially regarding housing. They're incredible savers and hugely productive workers. 

https://www.ceicdata.com/en/japan/mortgage-rate

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16 hours ago, scepticus said:

...Back when the GFC hit in 2008 and after QE was started and everyone was screaming about swingeing rates rises many were suckered into fixed rate deals and soon regretted it. I was posting on here back then predicting IRs would stay low essentially forever and was roundly ridiculed. So I just stuck to my low rate trackers and have been quite happy with my decisions and predictions ever since...

Keep banging the drum. It woke me up and hope it does the same for others, or at least prompts more thinking.

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1 hour ago, Ah-so said:

And while Japan has had near zero interest rates for the best part of 30 years, it has not had negative mortgage rates.  I think that they are about 1% at the moment, they have been quite a bit higher in the past.

Yes that's true; however the OP of this thread and my continuation of it regards European mortgages. That said, IMO the reason why Japan has not seen similar phenomena is as a result of their embracing fiscal incontinence specifically to avoid the negative rates scenario.

Obviously if the government is willing to step up and borrow whatever it takes to keep rates positive then this can be done at least for a time (of course the end game here is nationalisation of the economy). The europeans are in general for various reasons not willing to go down the same road and hence must suck up NIRP instead.

It would be fair to say that the UK could go either way at this point. One imagines a Corbyn or other hard left government might prefer the Japan route and a more centrist administration which remains aligned with european norms will prefer NIRP to that.

 

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2 hours ago, Confusion of VIs said:

The BTL bandwagon may have stopped growing but it will stagger on for as long as mortgages are available at under 4%.  

I know people who have BTL rates around 2%. It is ludicrously cheap to borrow money to buy houses to rent out. Therefore the houses will remain higher in value than when rates were higher.

I am not sure of scepticus' reasons for his belief in permanent low interest rates but I've posted mine several times before. Increasingly efficient production and distribution allows supply to easily meet demand, which means low inflation (for most things) which translates into low interest rates.

Of course, all that cheap credit directly inflates the scarce assets that it is also used to buy, land/houses. Sadly, I believe that's all she wrote. I don't believe we'll ever see house back to traditional multiples of income and this phenomenon is global. Something that many people seem to ignore when they think it's all immigrants "wots to blame".

Edited by dugsbody

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10 hours ago, Confusion of VIs said:

Low interest rates have greatly reduced the impact of s24, in fact the fall in mortgage rates since it was announced has completely negated it.

The BTL bandwagon may have stopped growing but it will stagger on for as long as mortgages are available at under 4%.  

Agree unfortunately 

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Danish mortgages aren't the same as UK mortgages, I don't think Danish mortgages being issued at negative rates means it's likely here any time soon

As I understand it

Danish banks charge a set annual fee of circa 1% annually for your mortgage.

You apply for a mortgage of, say £500k, the bank grants this and gives you £500k. Taking fees of 5k

The bank then issues your mortgage as a real estate investment bond. Not bundled in with others in a reit type trade, but just a single bond for your £500k

That bond matures when your mortgage is paid

Because bonds are currently trading at negative yields, they can issue your bond at a negative rate.

So while this negative rate is unusual, the bank isn't actually losing anything. The net effect is that you are borrowing £500k today for the promise of, say, repaying £480k in 25 years. In the meantime you make repayments to the bank calculated on amortising to the £480k figure, and the bank gets it's fee of 1% each year.

https://www.dlapiper.com/en/uk/insights/publications/2019/04/real-estate-gazette-34/leveraging-in-denmark/

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3 hours ago, regprentice said:

Danish mortgages aren't the same as UK mortgages, I don't think Danish mortgages being issued at negative rates means it's likely here any time soon

As I understand it

Danish banks charge a set annual fee of circa 1% annually for your mortgage.

You apply for a mortgage of, say £500k, the bank grants this and gives you £500k. Taking fees of 5k

The bank then issues your mortgage as a real estate investment bond. Not bundled in with others in a reit type trade, but just a single bond for your £500k

That bond matures when your mortgage is paid

Because bonds are currently trading at negative yields, they can issue your bond at a negative rate.

So while this negative rate is unusual, the bank isn't actually losing anything. The net effect is that you are borrowing £500k today for the promise of, say, repaying £480k in 25 years. In the meantime you make repayments to the bank calculated on amortising to the £480k figure, and the bank gets it's fee of 1% each year.

https://www.dlapiper.com/en/uk/insights/publications/2019/04/real-estate-gazette-34/leveraging-in-denmark/

Good explanation thanks. 

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4 hours ago, regprentice said:

Danish mortgages aren't the same as UK mortgages, I don't think Danish mortgages being issued at negative rates means it's likely here any time soon

As I understand it

Danish banks charge a set annual fee of circa 1% annually for your mortgage.

You apply for a mortgage of, say £500k, the bank grants this and gives you £500k. Taking fees of 5k

The bank then issues your mortgage as a real estate investment bond. Not bundled in with others in a reit type trade, but just a single bond for your £500k

That bond matures when your mortgage is paid

Because bonds are currently trading at negative yields, they can issue your bond at a negative rate.

So while this negative rate is unusual, the bank isn't actually losing anything. The net effect is that you are borrowing £500k today for the promise of, say, repaying £480k in 25 years. In the meantime you make repayments to the bank calculated on amortising to the £480k figure, and the bank gets it's fee of 1% each year.

https://www.dlapiper.com/en/uk/insights/publications/2019/04/real-estate-gazette-34/leveraging-in-denmark/

Yep. Google translate isn't brilliant but the negative bond rate seems to be offset by higher mortgage fees, taxes and higher principal resulting from price below par. "In practical terms, it will be experienced that the mortgage loan repayment will be greater than it would be with a positive interest rate. The negative interest rate will act as a 'subsidy' to the repayment" so there's maybe a marketing aspect going on - https://www.jyskebank.dk/bolig/nyheder/realkredit-med-negativ-rente

Bond terms, in case anyone reads Danish (DK0009398893) -
https://jyskerealkredit.dk/fondsboersmeddelelser/fondsboersmeddelelse/f53230d8-9c5a-4707-a133-e4affaef9df9

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1 hour ago, PeanutButter said:

Good explanation thanks. 

Yes good info. Certainly quite different - and lower risk will translate to low rates of return. I get that the bank is getting a yearly fee - I suppose not unlike arrangement fees of £999 on a UK 2 year discount deal.

But it seems then that the party 'losing' is the buyer of the mortgage bond at a negative (or maybe below inflation) rate of return. 

[Edit]: which makes sense to me - in a negative rate environment in theory a bank is still looking to make a profit on the spread between borrowing and lending, regardless of where base rates actually sit.

Edited by scepticus

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On 14/08/2019 at 07:56, PeanutButter said:

Japan has a completely different housing market and is in no way comparable.

Their population is decreasing.

They view houses as depreciating assets and regularly bulldoze them and build new (primarily pre-fab) ones.

They can’t even give old houses away because of burdensome property taxes.

The nation is still collectively recoiling from the insane property boom/crash that burned a lot of people. They have long memories and culturally take ‘lessons’ to heart.

I’m not saying it won’t happen here, I’m saying Japan is no guide. 

Lucky Japan, the only mistake they've got is bulldozing old houses instead of new ones.

Seems especially odd seeing how the impression I get of a lot of Japanese homes is that they're very cramped.

Edited by Riedquat

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On 14/08/2019 at 08:16, spyguy said:

So is Europes.

The UKs population may look like its increasing,. whoever, its only benefit dependent migrants that are keeping the UK pop figures up.

The birth rate's below replacement (very good) and idiots are trying to jam more people in (very bad) but even without the latter the population might still be increasing now anyway if there was an earlier period of more people being born who are having children now. Overall population changes lag behind changes in the birth rate.

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22 hours ago, Captain Kirk said:

They've managed to distort the economy so much that money no longer makes any sense.

What they are distorting is currency. Not money. Gold is money and still makes perfect sense.

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  • 259 Brexit, House prices and Summer 2020

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