Friday, Jan 30, 2015

Crazy Libertas is not so crazy any more.

Zerohedge: In Denmark You Are Now Paid To Take Out A Mortgage

just earlier today we, rhetorically, asked a logical - in as much as nothing is logical in the new normal - question: "Who will offer the first negative rate mortgage". Little did we know that just minutes after our tweet, we would learn that at least one place is already paying homeowners to take out a mortgage. That's right - the negative rate mortgage is now a reality. Thanks of Mario Draghi's generosity with "other generations' slavery", and following 3 consecutive rate cuts by the Danish Central Bank, a local bank - Nordea Credit - is now offering a mortgage with a negative interest rate!

Posted by libertas @ 09:11 PM (6074 views)
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1. libertas said...

I thought I'd be popping back in six months to tell you so, that all those who had a go at me for being kooky were totally wrong.

Well, I predict that I will have plenty further evidence to throw at you all as this thing is coming down with incredible pace. We are witnessing the meltdown of European relations and a slow death of the Eurozone, as global capital flows put strain to a "Union" incapable of dealing with such stresses. But this is nothing new. All empires break down this way, due to democratic deficit and kleptocracy. Normally it ends in bloodbaths and wars. Will Europe be spared that indignity this time? Frankly, whilst negative rates are not best, they certainly beat World War III, and maybe, just maybe, some institutions will break free. Looking likely that Denmark will be next to break their peg and relationship with this sinking shi(t)p.

Friday, January 30, 2015 09:22PM Report Comment

2. libertas said...

Next come the negative interest rate funded tax cuts that create a virtuous cycle of economic growth followed by yet more tax cuts. Rates start to rise once taxes, deficits and national debts are reduced to sensible levels.

Friday, January 30, 2015 09:30PM Report Comment

3. quiet guy said...

Until your article, I have never looked at the Danish Central bank interest rates.

Here is some historical perspective:

Interesting in its way but the UK does not have a strict currency peg with the Euro policy. The first graph puts the article in a historical perspective.

Friday, January 30, 2015 10:20PM Report Comment

4. libertas said...

Yes, Denmark is committed until it isn't. It must either choose to join the Eurozone (No voter support) or fall away. At some point its FOREX reserves will become unsustainable, and there must be a negative rate that will spur action.

I never said it would be a fast process, but divergence is something that cannot be sustained without a fiscal, tax and political union, and that does not exist in the Eurozone at all.

Friday, January 30, 2015 10:41PM Report Comment

5. reticent said...

Well, it was a good 5 days anyway.

Friday, January 30, 2015 10:48PM Report Comment

6. i remember the 90`s said...

This site needs Libby after all you can`t have only one set of opinions .even if his do seem over the top .Keep posting Libby!!!!!!

Saturday, January 31, 2015 09:27AM Report Comment

7. clockslinger said...

I don't dislike your posts, Libertas, and am quite prepared to believe you want to encourage renters to buy while they can. However, I rather think that you're missing the point here. The reason a negative rate situation like this can arise this is that the real economy is very sick indeed and the wall of money leading to this very unnatural state of affairs won't fix what is wrong either. (I'm surprised that as a libertarian you think such extensive market interference by central banks would do so, anyway) I agree with you that low rates may inflate house prices further for a while but it won't prevent the rebalancing. As Alexis Tsipras put it so well in his recent open letter (which was also prominently published on zero hedge this week), the problem isn't one of liquidity, it is one of total insolvency. So, yes, well done to you for getting up and riding the tiger. I did so too (thankfully not in East Bumfuck, London an a long time ago) but I'm not sure I am inclined to encourage others to do so at the moment. The reason is that because the dismounting process from a very illiquid asset (such as residential property) isn't going to be easy when the inevitable correction comes and news like this just makes me think that day must be closer than I imagined. So unless you can sit tight, or can afford to buy because you want a house, not to speculate, I'm not sure I'd draw any reassurance from headlines like this.

Saturday, January 31, 2015 11:40AM Report Comment

8. debtserf said...

"...a virtuous cycle of economic growth followed by yet more tax cuts..."

Great headline, but have you read the small print? Dont see how this is either virtuous or indicative of growth. It suggests the total absence of growth. Japan also tried something similar and guess what - it didnt generate any virtuous growth.

Just more financial repression.

Saturday, January 31, 2015 12:42PM Report Comment

9. reticent said...

"news like this just makes me think that day must be closer than I imagined"

Nailed it.

Saturday, January 31, 2015 01:02PM Report Comment

10. britishblue said...

@ 9 seconded

Saturday, January 31, 2015 01:37PM Report Comment

11. Mark said...

Libertas, while negative interest rates are fantastic if you already have a mortgage, fixed for 10 years and alot of equity or a very large deposit (50% or more) it would be crazy as a first time buyer to buy a house now.

We are at a point on the long term debt cycle which is signalling a very painful deleveraging ahead, its probably imminent and if not then certainly within 12 months. This explains well where we are currently

McKinsey Global Institute also did a very good study on the long term debt cycle and showed that the UK is lagging very much behind the others in that deleveraging process.

The FTSE and the major other indices have all completed or close to completing their last impulse waves up, once complete if not already there will be a very painful correction, particularly to those who have invested heavily in stocks because they are not getting yield elsewhere on their savings.

During that massive deleveraging process all assett prices will fall, just because interest rates are low or negative it does not mean people will race to the estate agents to buy, it merely means the economy is sick there is a severe lack of demand in the deflationary cycle.

First time buyers are already priced out of the market, regardless of whether somebody pays them to take out the mortgage, its the capital which they cannot afford and without first time buyers that merry go round has already come to a grinding halt. The market simply does not function without new blood, it limps on for a while while people remortgage and extend their current home but once that period is over then the deleveraging starts.

Wage to average house price ratios are also way too high, at the start of a new cycle the max ratio is around 3 and thats expensive, so we have to correct to start the bubble all over again. Wages are not going up any time fast, in fact the deleveraging process will force us into a recession like no other and unemployment will rise significantly.

I do think you express some good points but I do not think you understand what deflation really means to the everyday man on the street. It is good to have more than one point of view on a blog but anybody first time buyers listening to your advise now would do well to put their hands over their ears!

Saturday, January 31, 2015 02:43PM Report Comment

12. khards said...

Reminds me of a time when I found it hard to believe the headlines that you could take out a 125% mortgage. Two years later the banks collapsed.

Saturday, January 31, 2015 04:27PM Report Comment

13. magnifico said...

Khards @11. agreed. Still as long as can repackage the same lies under different headings the populace won't mind. The one, only and still following HPC (1994), and still mainly writing when drunk.
STR at the right time , still thinking my kids deserve to be able to afford a home therefore hoping and praying for a crash.

Saturday, January 31, 2015 08:40PM Report Comment

14. magnifico said...

Sorry forgot to say bought at the right time too

Saturday, January 31, 2015 08:43PM Report Comment

15. stillthinking said...

It will be interesting to see how the retail banks can continue operations with negative interest rates..

Saturday, January 31, 2015 09:54PM Report Comment

16. libertas said...

"The reason a negative rate situation like this can arise this is that the real economy is very sick indeed"
Indeed I completely agree that the economy is sick. However, I believe that this is a market response that if left to do its job, can resolve imbalances.

"I'm surprised that as a libertarian you think such extensive market interference by central banks would do so, anyway"
- Actually, I believe that the market economy can resolve imbalances DESPITE governments attempting actions that should cause economic destruction. The net result thus far of these central bank policies have been almost a lost decade. This deflation, abjectly hated and feared by the central banks is the market response and it can resolve matters IF it is responded to with tax cuts to stimulate demand.
- Governments can make things worse by trying to do what they are doing in Greece by trying to pile more debt onto the economy.
- However, negative interest rates could make it impossible for governments to do the wrong thing this time. They could be in a catch 22 situation, where negative rates reverses interest payments, producing budget surpluses, where they cannot borrow enough to off-set the creation of surpluses, because more public sector debt drains the private sector and it is completely drained, so the new public debt causes further deflation, causing yet more negative rates, further moving us towards budgetary surplus plus, the economy will respond so positively to any tax cuts that are made that governments will get addicted to cutting rates to cause real growth that creates real satisfaction on the ballot box.

Now, I never said that this would be the intention of governments, and not all will get it right, but I can see a Tory government here generally going in this direction. Note, that their first reaction to a faltering housing market was a stamp duty cut and reform, and their first reaction to plunging oil prices was to reduce taxes on North Sea Oil, and so a new trend and cycle in economic history begins.

Notice, I am saying that governments are merely following the trend and reacting to the situation they put us in. It is called feedback, where government action is finally being driven by negative feedback from previous government action, causing it to shift in a wholly new direction. Infact, this is the way that all self regulating autonomous systems behave, such as society, with those dynamics being above and beyond the control and fathoming of any one player or group of players. They can only game the system so much, for only a given length of time.

Comments were also made about me attempting to get renters into the market before they are priced out? Actually, it is not about being priced out. I think that most people will be able to find a property most of the time, so long as they compromise on location, condition of home (maybe a project) and size. If it is your first place, maybe you need to buy a studio flat, even if your family rent a house. The issue is not being priced out, it is about throwing rent away, missing the opportunity to accumulate capital AND most importantly, being in a position that you own your home, regardless of whether it is a shoe-box in a dump, before you retire because the SIMPLE PRINCIPLE of home ownership, is that retirement is difficult to impossible if you have to chase rising rents on a fixed income.

Saturday, January 31, 2015 10:54PM Report Comment

17. libertas said...

I am also expressing a desire to counter central bank propaganda that is causing people to make bad decisions. I have stated in particular, that the BOE's constant drumming towards a rate rise is effectively mortgage miss-selling on a national scale, whereby people have made bad decisions, choosing fixed rate mortgages that are now super expensive.

I know so many friends who listed to BOE and chose expensive 5yr fixes at probably 5%, when I ignored the BOE, chose a flex rate and am on 1.7% interest rate and falling. Note, I chose a mortgage multiple that facilitates a 10yr fix at the point where rates are at a turning point. Interestingly, when I took out the mortgage in October, 30% down was required for a 10yr fix. They now accept 20% down on some 10yr fixed rates, and so I now have a massive buffer and prices can fall and still let me bag a 10yr fix one I need it.

This despite the broker trying to miss-sell me a 5yr fix, bleating on about how risky variables are and telling me ad-infinitude that rates are at historic lows and cannot fall further, but I told him that he simply did not understand that rates on Gilts can go negative and that mortgages can too because mortgage companies make cash on the arbitrage between lending and borrowing rates, regardless of what they may be, be they negative or positive. I proved him right.

Saturday, January 31, 2015 11:00PM Report Comment

18. reticent said...

"They now accept 20% down on some 10yr fixed rates, and so I now have a massive buffer and prices can fall and still let me bag a 10yr fix one I need it [ceteris paribus]."

You might find that if prices start to fall, the buffers start to rise. Just a thought.

"I proved him right."

I think what you just proved is that you spend less time writing your posts than it takes to read them (and not for the first time).

Saturday, January 31, 2015 11:12PM Report Comment

19. reticent said...

"In Denmark You Are Now Paid To Take Out A Mortgage"

"In Soviet Russia, CAR drives YOU!"

...and look how that worked out.

Saturday, January 31, 2015 11:14PM Report Comment

20. Janch said...

Libby you may have a cheaper mortgage and be paying less pcm than all your friends pay in rent but if/when the capital value of your house falls which may mean a loss of £1000s if/when you sell then maybe you would have been better off in the long run by paying rent and being able to pass the risk of a house price fall onto your LL. This is the risk you take when you buy into an overinflated bubble.

Monday, February 2, 2015 03:23PM Report Comment

21. letthemfall said...

libertas: "Comments were also made about me attempting to get renters into the market before they are priced out? .... The issue is not being priced out, it is about throwing rent away"

I think most here believe your motivation changed when you bought a house. Throwing rent away? Isn't that a fallacy that has been widely disabused here? This only has meaning in the context of mortgage rates and capital appreciation, neither of which are really predictable, especially the latter. You are assuming that the economy will stagnate and money will continue to flow into housing for the foreseeable future. As indeed many are, particularly the amateur BTLers, who have sunk everything they have into one asset. It's a bet that looks horribly shaky, even if it's a horse that never seems to run out of steam - yet.

Monday, February 2, 2015 05:44PM Report Comment

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