More European Banks Pay Negative Mortgage Rates

[Lightning]

Great article on the front page of the WSJ today on negative mortgage rates in Europe. The article can be read for free via Google News .

Some Spanish mortgage products are paying paying negative rates via reducing capital rather than applying interest.

Some banks in Switzerland, Portugal and Denmark are doing the same.

“I’m going to frame my bank statement, which shows that Bankinter is paying me interest on my mortgage,” said a customer who lives in Madrid. “That’s financial history.”

Granted, these are usually tracker Euribor products and not directly comparable to SVR products. However, they provide further evidence of the widening gap between continental European mortgage rates and Irish mortgage rates.

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[Jim2007]

Great article on the front page of the WSJ today on negative mortgage rates in Europe. The article can be read for free via Google News .

Most definitely a matter of opinion. The article fails to point out the most obvious fact, the interest refunds are the result of a contractual obligation, a brain child of the bank. And furthermore because the financing is based on a real funding source, we can assume that the banks cost of funds is negligible.

Some banks in Switzerland, Portugal and Denmark are doing the same.

I can not find any mention of either Swiss or Danish banks paying interest to mortgage holders. Furthermore I doubt either will because both countries uses some form of variation on fixed rates, as does Germany for that matter.

Granted, these are usually tracker Euribor products and not directly comparable to SVR products.

This is about the equivalent of saying an apple is the same as an orange! The ECB is a lender of last resort and is used to fund mortgages, where as the Euribor is a valid source of funding for financial products so there is a direct cause and effect relationship.

However, they provide further evidence of the widening gap between continental European mortgage rates and Irish mortgage rates.

If Irish products were based on the Euribor and Irish banks were able to access that source of funding you'd have a point, but they are not.

 

[futures]

this is a clickbait headline. Irish people are using it for comparison without bothering to read the basics

http://www.wsj.com/articles/as-inte...1428939338?mod=WSJ_hp_LEFTWhatsNewsCollection

The vast majority of Spanish home mortgages have rates that rise and fall tied to 12-month Euribor, said Irene Peña, an economist with Spain’s mortgage association. That rate stands at 0.187%.

In Spain, Bankinter has been forced to deduct some clients’ mortgage principal payments because an interest-rate benchmark tied to Switzerland’s currency has dipped into negative territory.

There are many people in Poland and Hungary whose mortgage repayments are sent in Swiss Francs but you won't hear much comparison with those people

 

[Brendan Burgess]

Hi Jim

Very interesting point on the contractual obligation. I suppose if the ECB rate fell to -1%, Irish banks would have to reduce some trackers to -0.4%.

Here is some evidence from Bloomberg on the Danish market. It's not clear to me if they are offering new at negative interest rates, or whether they are reducing the rates on existing mortgages according to contract.

http://www.bloomberg.com/news/artic...meet-with-danish-government-on-negative-rates

Brendan

 

[Sarenco]

I suppose if the ECB rate fell to -1%, Irish banks would have to reduce some trackers to -0.4%.

Not necessarily Brendan, although it depends on the wording of the particular mortgage contract.

The issue actually already came up for the discussion in the UK where some tracker products were issued prior to the financial crises at a percentage rate below the official Bank of England rate (and you thought our lenders went nuts!). The general view seems to be that the rate can go to zero but no lower in most cases - link to a Telegraph article on the issue below:

http://www.telegraph.co.uk/finance/...-could-have-their-mortgage-paid-by-banks.html