Sunday, May 22, 2022

The land of cheap mortgages has fallen to zero

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The country with the longest history of negative central bank rates offers homeowners 20-year loans at a fixed interest rate of zero.

Clients of Nordea Bank Abp’s Danish real estate finance unit can, from Tuesday, get mortgages, which will carry a lower coupon than benchmark 10-year US Treasuries.

Denmark stands out in a global context as a country that has lived with negative central bank rates longer than any other. In 2012, policymakers pushed their key rate below zero to defend the krone’s peg to the euro. Since then, Danish homeowners have benefited from the continued decline in borrowing costs.

The once unthinkable notion of borrowing for two decades without paying interest comes as central bankers avoid rate hikes. No major western central bank is expected to hike rates this year, according to Bloomberg’s quarterly monetary policy review.

Danske Bank A / S, Denmark’s largest lender, said it was also considering issuing a 20-year interest-free bond.

Danish banks first issued 20-year bonds with 0% coupons a few years ago, as investors looking for a safe place to park their money pushed market rates down. Danish covered bonds backed by mortgages. This is the first time since such a product has been returned to the shelves.

The demand is there, said Lisa Bergmann, chief housing economist at Nordea Kredit, in a note. The bond is expected to cost near a record high, she said.

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