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How Danish mortgages could be affected by ECB interest rate cut

Michael Barrett
Michael Barrett - [email protected]
How Danish mortgages could be affected by ECB interest rate cut
The ECB cut interest rates for the first time since 2019 on Thursday in a move that is expected to see some types of variable rate mortgages in Denmark affected by July. File photo: Mathias Bojesen/Ritzau Scanpix

The European Central Bank (ECB) on Thursday announced its first cut to interest rates since 2019, in a move that is expected to affect variable rate mortgages in Denmark.

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The interest rate has been cut by 0.25 percent points to 3.75 percent, the ECB said in a statement on Thursday.

That comes after ten successive occasions on which the ECB raised interest between 2019 and 2023. The 0.25 percent points by which interest was reduce in Thursday is the largest cut for 12 years.

The purpose of the ECB’s interest rate policy is to ensure inflation does not exceed 2 percent in countries which use the Euro.

Although interest in the Eurozone has been between 2 and 3 percent in recent months, the ECB president Christine Lagarde said it was appropriate to cut interest rates because inflation has been stable for nine months.

Although Denmark does not use the Euro, ECB policy is relevant for Danish consumers because of the Danish monetary policy which states the exchange rate between the krone and Euro must be held at the same level.

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Denmark’s central bank, Nationalbanken, is therefore expected to announce its own lead interest rate cut later on Thursday, in line with the ECB announcement.

That will directly affect around 400,000 homeowners in Denmark who have certain types of flexible rate mortgage, as broadcaster DR describes.

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Specifically, the types of flexible rate mortgages with rates that are adjusted twice a year will see a reduction in interest as soon as July 1st, DR reports. These mortgage types have different names depending on the products offered at different banks.

Thursday's interest rate cut is generally good news for homeowners with variable rate mortgages, senior economist Jeppe Juul Borre of Arbejdernes Landsbank told newswire Ritzau.

"We've already seen a small drop in variable mortgage rates based solely on the expectation that the ECB will enter a period of interest rate cuts. And the ECB is living up to that today," he said.

Other types of flexible loan will not see the same type of immediate benefit, it should be noted. That is because the market for those loan types has already taken the interest rate cut – which had been expected – into account.

Economists expect Nationalbanken to reduce Denmark’s lead interest rate by 0.25 percent points, from 3.6 percent to 3.35 percent, later on Thursday.

 

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