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MORTGAGE

Can you really get paid for borrowing money in Denmark?

Last week, the Realkredit Denmark financial institution paid, for the first time, negative interest to a customer—meaning the customer was effectively paid for taking out a mortgage.

Can you really get paid for borrowing money in Denmark?
File photo: Kasper Palsnov / Ritzau Scanpix

Negative interest results in the customer effectively being paid by the lender to borrow money, or that they pay back less than they have loaned.

On Monday, the phenomenon was showing signs of spreading elsewhere in the country’s financial sector.

Homeowners who have taken out a certain type of loan known as an F5 loan, with which up to 40 percent of the house’s value can be borrowed, can, with Monday’s interest levels, find themselves paying minus 6 kroner per month to borrow 1 million kroner.

Interest on F5 loans is currently at -0.56 percent, with the repayment rate 0.55 percent. Those terms mean homeowners can be given money for borrowing money.

While last week’s negative interest mortgages were the result of a specific set of contributory circumstances, a larger group of borrowers could benefit this time, according to Christian Helligsøe Heinig, Realkredit Denmark’s head economist.

READ ALSO: Lender to launch Denmark's cheapest ever mortgage

“It will typically be homeowners in the senior age group, who think they have repaid enough and want to make their daily lives sweeter, who will be looking towards flexible repayment and F5 loans,” Heinig said.

Around 1 in 4 of homeowners borrowing from Realkredit Denmark have a loan-to-value ration of a maximum of 40 percent, he said.

But the situation is an “absurdity” that breaks with economic wisdom, he added.

It is partly caused by a flooding on the market of money available for investment, he said.

That is related to attempts made by central banks to stimulate the economy by increasing the amount that can be borrowed for investment in projects that can benefit society in an economic sense.

Another reason is the growing size of private savings, he said.

“In all cases, it is important to be clear that the opportunity to make money by borrowing money should not tempt ordinary members of the public to throw themselves into investments using borrowed money,” the economist said.

“There’s no such thing as a ‘free lunch’ in the current financial climate,” he said.

READ ALSO: What you need to know when buying a home as a foreigner in Denmark

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FINANCE

Millionaires to be hit by negative interest rate at Danish bank

Jyske Bank is set to become the first major lender in Denmark to apply negative interest to customers’ savings accounts.

Millionaires to be hit by negative interest rate at Danish bank
File photo: Mads Claus Rasmussen/Ritzau Scanpix

But only customers with savings of more than 7.5 million kroner (1 million euros) will be affected by the change—initially, at least.

The bank confirmed the new conditions as it announced results for the first six months of 2019.

Interest rates of 0 percent will be applied to the first 7.5 million kroner of all customers’ savings, with -0.6 percent applied thereafter unless alternative terms and conditions have been agreed, Jyske Bank said.

Most customers will therefore be unaffected by the change initially, but others may be encompassed further down the line, according to CEO Anders Dam.

“I hope (it won’t happen), but I can’t promise. It depends what happens in future, including whether there are further drops in interest rates,” Dam told financial newspaper Børsen.

The CEO said the bank’s decision has been made based on negative interest rates in Denmark in recent years, effectively costing Jyske money to hold customers’ savings.

“The prevailing negative interests that have characterized the Danish market since 2012—broken only in 2014—seem to have become more permanent in character,” Dam, said.

“Market forecasts project that negative interests will prevail for several years,” he added.

The new Jyske Bank terms mean that, for example, a customer with 10 million kroner in savings will pay 15,000 kroner annually to keep them at the Danish bank.

But the bank is also open to negotiating rates with customers, Dam added.

Only a small number of customers will in fact end up paying negative interest, according to the assessment of economist Per Hansen of investment firm Nordnet.

“It requires you to have more than 7.5 million kroner – not many do, after all,” Hansen said.

“Additionally, you would need to have no other business with the bank, and therefore no special arrangements, for negative interest to apply,” he said.

Although the negative interest is the first to be applied to customers, businesses in the country have already experienced the unfavourable terms.

Jyske Bank introduced negative interest for businesses under broad terms in 2016, according to Finanswatch.

READ ALSO: Can you really get paid for borrowing money in Denmark?

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