According to Bloomberg, Nordea Bank Abp began offering the deals this week and at least two other banks have said they will do the same.
Denmark reduced its central bank rate in 2012 to below zero to defend its exchange rate against the euro. Since then Danish borrowers have enjoyed low mortgage costs.
According to Bloomberg’s quarterly review of monetary policy, central banks around the world are reluctant to increase interest rates and it is unlikely that any central western bank will do so this year.
In August 2019, the country’s third largest financial institution Jyske Bank offered ten-year fixed rate deals priced at -0.5 per cent. This meant that borrowers would only need to pay back 99,500 in every 100,000 Krone borrowed if they paid the loan off in full at the end of the term.
Jyske Bank and Totalkredit, a unit of Denmark’s largest mortgage lender, Nykredit Realkredit A/S, have also said they will offer 20-year deals fixed at 0 per cent while Danske Bank has indicated it may join them.
Lenders act as brokers
Denmark’s mortgage lenders act in a different way to UK lenders.
Mortgages are directly tied to the covered bonds used to fund them. Lenders act as the broker between the borrower and the investor.
Instead of making money through interest rates they generate income from fees. The coupon rate is passed on to the borrower.
Rachel Springall, finance expert for Moneyfacts, said that although rates in the UK have been known to fall below one per cent on short-term deals in the past, it is unlikely British homeowners will be offered zero interest rates.
She added: “It would be unusual to see a fixed-rate mortgage launched onto the UK market that is longer than a ten-year fixed at the moment unless it was tailored to a specific type of borrower.
“However, there are some 15-year fixed rate mortgages currently available which may appeal to borrowers who want to secure a rate for the longer term. Borrowers would be wise to keep in mind the early repayment charges though.
“There could well be consumers who feel concerned about economic uncertainties and any impact to their finances – so they may wish to lock down a competitive mortgage rate to weather any storm.”
