I don’t speak Danish, but Jyske Bank, Denmark’s third largest bank, is offering its customers “negativ rente”. What does “negativ rente” mean? Negative interest rates. Yes, Jyske are offering mortgages that have negative interest. They’ll pay you to take out a mortgage. Well, not exactly. They are offering a fixed-rate 10-year mortgage has an interest rate of -0.5%. What does that mean? It means that you still have to make monthly repayments, but the interest rate reduces the principal you owe to the bank. You end up paying back less than what you borrowed. What effect do these low interest rates have on the housing market in Denmark? As expected, they’re causing a housing bubble. “Danish house prices reach highest ever level, beating 11-year record”; “Cost, not availability, is source of housing difficulties in Danish cities”. If we look at historical interest rates in Denmark, we can see that over the last decade, rates have plummeted. It’s currently at a record low of -0.75%. This trend of negative interest rates is spreading throughout Europe. Just last month, the European Central Bank slashed its deposit rate to a record low of -0.5%. So what about the land of Oz? Are we going to see negative interest rates in Australia anytime soon? Recent news articles aren’t very optimistic. “'To zero and beyond': What if zero interest rates don't work?”; “When interest rates approach zero, the RBA must rethink monetary policy”. What are the RBA to do? They’re almost out of bullets. Most experts agree that the RBA will probably cut interest rates to 0.5% by the end of this year, and maybe even to 0.25% by early 2020. But will it help? MY GEAR
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