In the future will all mortgage rates be negative?

Today I thought that I would look at some real world implications of the surge in bond markets which has led to lower and in more than a few cases ( Germany and Switzerland especially) negative bond yields. The first is that government’s can borrow very cheaply and in the case of the two countries I have mention are in fact being paid to borrow at any maturity you care to choose. This gets little publicity because government’s prefer to take the credit themselves. My country the UK is an extreme case of this as the various “think tanks” do all sorts of analysis of spending plans whilst completely ignoring this basic fact as if a media D-Notice has been issued. I would say that “think tank” is an oxymoron except in this instance I think you can take out the oxy bit.

Negative Mortgage Rates


Back on the 29th of May we were already on the case.

Interest rates on Danish mortgage loans have fallen since 2008. From an average interest rate including administration fee of close to 6 per cent in 2008 to under 2.2 per cent in August 2018. This is the lowest level since the beginning of the statistics in 2003.

Back then we also observed this.

For one-year adjustable-rate mortgage bonds, Nykredit’s refinancing auctions resulted in a negative rate of 0.23%. The three-year rate was minus 0.28%, while the five-year rate was minus 0.04%.

As you can see at the wholesale or institutional level interest-rates had gone negative and the central bank the Nationalbanken had seen reductions in the fees added to these as well.

That was then but let us pick up the pace and move forwards to the 2nd of this month. Here is The Local in Denmark.

Mortgage provider Realkredit Danmark will next week start offering Denmark’s cheapest ever 30-year mortgage, with an interest rate of just 0.5 percent per year. The fixed-rate 30-year loan is the lowest interest mortgage ever seen in Denmark, and is likely to be matched by Realkredit competitor Nordea Kredit.

That implied negative mortgage rates at shorter maturities although we already knew that but this week things have taken a further step forwards or perhaps I should write backwards. From Bloomberg.

In the world’s biggest covered-bond market, a Danish bank says it’s now ready to sell 10-year mortgage-backed notes at a negative coupon for the first time.

It’s the latest record to be set in a world that’s being dragged down by ever lower interest rates. In Denmark, where Jyske Bank will offer 10-year mortgage bonds at a fixed rate of minus 0.5 per cent, average Danes will borrow at rates far lower than those at which the US government can sell its debt.

Since then things have taken a further step as Nordea has started offering some mortgage bonds for twenty years at 0%, So we have nice even 0.5% changes every ten years.

If we look at Finance Denmark it tells us that variable rate mortgage bonds are at -0.67% in Danish Kroner and -0.83% in Euro in the 31st week of this year with a noticeable 0.2% drop in Euro rates.

This is impacting on business as we see that the latest three months have seen over 30,000 mortgages a month taken out peaking at 39,668 in June. This compares to 16/17k over the same 3 months last year so quite a surge. If we switch to lending volumes then the Danish mortgage banks lent more than double ( 212 billion Kroner) in the second quarter of this year.

Also as the Copenhagen Post points out whilst it may seem that negative mortgages are easy to get banks will behave like banks.

Banks are set to make money from the mortgage loan restructuring.

“We are in the process of a huge conversion wave, and the banks are of course also very interested in talking about that. Because they make good money every time a new loan is taken up,” explained Morten Bruun Pedersen, a senior economist at the Consumer Council, to TV2.

These days banks make money from fees and charges as there is no net interest income and on that subject we have a curiousity. On the one hand Danes are behaving rationally by switching to cheaper mortgages on the other the data from the Nationalbanken is from earlier this year but they have around 900 billion Kroner on deposit at 0% which is less rational and will have central banking Ivory Towers blowing out plenty of steam.

So whilst there are some negative mortgage rates the fees added are doing their best to get them into positive territory. The Nationalbanken highlights this here.

In 2018, Danish households paid an average interest rate of 1.20 per cent on their mortgage debt along with 0.96 per cent in administration fees.

I guess someone has to pay the banks money laundering fines

Just for research purposes I looked at borrowing 2 million Kroner on the Danske bank website and after 30 years I would have repaid 2.2 million so not much extra but it was positive.


It has not been reported on much but there was an outbreak of negative mortgage rates in Portugal as this from Portugal on the move highlights.

The new law forces banks to reflect Euribor negative interest in home loan contracts. It was supported by all political parties in the country except the centre-right PSD which abstained.

The bill, which the banks and the Bank of Portugal tried to block, applies to all mortgages index-linked to Euribor rates.

Above all the law will benefit those with Euribor mortgages with very low spreads (commercial margins of banks), at around 0.30%.

The law allows for Euribor rates, currently in the negative across all terms, should be reflected in contracts, even after the cancelled spread, which implies a capital payout.

Typical that the banks would try to evade their obligations and notable that the Bank of Portugal could not look beyond “The Precious”


When the credit crunch hit the UK saw a brief burst of negative mortgage rates. This was caused by the market being very competitive and mortgages being offered below Bank Rate and so much so that when it plunged to 0.5% some went negative. The most famous was Cheltenham and Gloucester and I forget now if it went to -0.02% or -0.04%.

This had wider consequences than you might think as banking systems were unable to cope and repaid capital rather than recording a negative monthly repayment. That was echoed more recently in the saga in Portugal above. A consequence of this was that the Bank of England went white faced with terror muttering “The Precious! The Precious!” and did not cut below an interest-rate of 0.5%. This was the rationale behind Governor Carney;s later statements that the “lower bound” was 0.5% in the UK.

If you are wondering how he later cut to 0.25% please do not forget that the banks received an around £126 billion sweetener called the Term Funding Scheme.


So we have seen that there are negative mortgage rates to be found and that we can as a strategy expect more of them. After all it was only yesterday we saw 3 central banks cut interest-rates and I expect plenty of others to follow. A reduction in the ECB Deposit Rate (-0.4%) will put pressure on the Danish CD rate ( -0.65%) and the band will strike up again.

In terms of tactics though maybe things will ebb away for a bit as this from Pimco highlights.

It is no longer absurd to think that the nominal yield on U.S. Treasury securities could go negative……..What was once viewed as a short-term aberration – that creditors are paying debtors for taking their money – has already become commonplace in developed markets outside of the U.S. Whenever the world economy next goes into hibernation, U.S. Treasuries – which many investors view as the ultimate “safe haven” apart from gold – may be no exception to the negative yield phenomenon. And if trade tensions keep escalating, bond markets may move in that direction faster than many investors think.

The first thought is, what took you so long? After all we have been there for years now. But you see Pimco has developed quite a track record. It described UK Gilts as being “on a bed of nitro-glycerine” which was followed by one of the strongest bull markets in history. Also what happened to US bond yields surging to 4%?

Maybe they are operating the “Muppet” strategy so beloved of Goldman Sachs which is to say such things so they can trade in the opposite direction with those who listen.

As to the question posed in my headline it is indeed one version of our future and the one we are currently on course for.




What has happened to the UK housing market post the leave the EU vote?

As the UK economy moves on post the leave vote we have an opportunity to take a look at the mortgage and housing markets as we peruse new data.  That will take our minds off all the news services pointing out another record low for the share price of my old employer Deutsche Bank which has fallen 6% this morning in response to reports it will not be bailed out. Speaking of price plummets we were of course promised this by the former Chancellor of the Exchequer George Osborne.

An analysis by the Treasury to be published next week will suggest that two years after a Brexit vote, UK house prices could be between 10% and 18% lower than after a remain vote, Mr Osborne told the BBC.

The next bit was maybe even more spectacular.

And at the same time, first-time buyers are hit because mortgage rates go up, and mortgages become more difficult to get.

Apparently a drop in prices would not even help first-time buyers according to the convoluted logic of Mr. Osborne.

What has happened to UK mortgage-rates?

Last week Moneyfacts told us this.

The cut to base rate has had a welcome impact on mortgage rates, and it isn’t only residential borrowers who are benefiting. Indeed, our latest research shows that buy-to-let (BTL) investors are continuing to enjoy a fall in mortgage rates, particularly those looking for a longer-term deal, with average rates falling to all-time lows.

Ah all-time lows again! What sort of rates are being seen then?

the figures show that the average five-year fixed rate BTL mortgage at 75% loan-to-value (LTV) has fallen by a significant 0.49% in six months to stand at 3.96%, which marks the first time that the rate has fallen below 4.00%. Meanwhile, the average five-year rate at 70% LTV has fallen by 0.15% in a single month, while the average at 60% LTV has fallen by 0.13%.

If we want some more perspective we have this.

all rates have dropped dramatically, with all falling by almost 1% year-on-year:

So it would appear that in spite of the surcharge on Stamp Duty in April new borrowers and those able to remortgage are better off in terms of monthly repayments.

If we move onto ordinary mortgages then Moneyfacts told us this on the 15th.

The figures, taken from the latest Moneyfacts UK Mortgage Trends report, show that the average two-year tracker mortgage rate has fallen by a significant 0.19% in the last month, standing at 1.94% in August (down from 2.13% in July). Not only is this the lowest ever recorded, but it implies that almost the full 0.25% base rate cut has been passed on.

A little care is needed on the Bank Rate cut issue as banks rather sneakily nudged rates higher in July in anticipation of the widely expected official change. The same was true of fixed-rate mortgages with the net effect shown below.

Nonetheless, the month-on-month fall of 0.04% means that the average two-year mortgage rate has hit yet another record low of 2.44%, while the average five-year fixed rate has seen a similar reduction of 0.03% to another record of 3.05%.

So we see a world where up is yet again the new down as the mortgage rates which were supposed to rise have in fact fallen across the board to what are mostly all-time lows.

The Bank of England steps in

There have been a litany of easing moves from the Bank of England since the leave the EU vote. These of course contradicted all versions of the Forward Guidance of Governor Carney. We have seen a cut in the Bank Rate to 0.25% which is below the “lower bound” of Governor Carney as well as hints of future cuts. In addition we have seen £60 billion of conventional QE (Quantitative Easing) announced of which some £1.17 billion of short-dated ( up to 2023 maturity) purchases will take place this afternoon. Thus we see that downwards pressure was placed on both variable and fixed-rate mortgages.

As of last week another weapon has been deployed which is the Term Funding Scheme. This offers up to £100 billion for four years at the Bank Rate itself. So it is a replacement for the Funding for (Mortgage) Lending Scheme which still exists albeit mostly as a vehicle which supported past mortgage lending. Those who want to know more about the TFS can read about it in my article of the 16th of this month, but for today’s purposes it is a vehicle to keep the downwards pressure on mortgage interest-rates. We only have data on the first couple of days when nothing was taken but at any time banks have trouble funding products it is there as a backstop and a very cheap one at that.

House prices

If we look at the official data there has been little sign of a collapse or a reverse in house prices.

Average house prices in the UK have increased by 8.3% in the year to July 2016 (down from 9.7% in the year to June 2016), continuing the strong growth seen since the end of 2013.

The march higher has in fact continued.

The average UK house price was £217,000 in July 2016. This is £17,000 higher than in July 2015 and £1,000 higher than last month

Late last week Jackson-Stops published some research on the subject which is more up to date.

Asking prices of all UK properties for sale down by only 2% (from £297,508 in mid-June to £291,547 today)…… In London asking prices are only down 3% since mid-June

The caveat is that these are asking prices and not ones at which sales took place but there is only a mild change there. Some parts of London were already heading south as those who recall my article covering an area near to me ( Battersea Power Station and Nine Elms) where many new builds seem to have swamped demand.

As ever the numbers vary with whoever you ask as the Halifax recorded a 0.6% rise in house prices in August!

British Bankers Association

They have reported this today.

House purchase approval numbers are 21% lower than in August 2015 but in the first eight months of 2016 they are 2% lower than in the same period of 2015.

Is this a turn or a wait and see what happens? Actual borrowing was quite strong.

Gross mortgage borrowing of £12.4bn in the month was 1% higher than in August 2015. Net mortgage borrowing is just under 3% higher than a year ago.

Actually though the data is not what you might think as it was collected before the Bank of England move on the 4th of August! So we are left perhaps with the Council of Mortgage Lenders.

The Council of Mortgage Lenders estimates that gross mortgage lending reached £22.5 billion in August – 7% higher than July’s lending total of £21.1 billion. In addition to the month-on-month rise, lending rose 15% year-on-year, from £19.5 billion in August 2015. This is the highest August figure since 2007 when gross lending reached £33.6 billion.

Looking forwards there is this.

As with survey indicators for the economy, those for the housing market have also recovered in August. The Royal Institution of Chartered Surveyors survey bounced back, predicting price and sales volumes to rise over the three- and 12-month horizon.


As is so often the case we find ourselves noting information and data sources which are contradictory. However we do know that mortgage rates have fallen and that many house price indicators have shown rises. That is sad because whilst Chancellor Osborne used house price falls as a threat many such as first-time buyers would welcome them.

If we have many more days like this one then going forwards there may be issues over banks lending due to the fact their share prices are under pressure. Against that we know that central banks will rush with the speed of Usain Bolt to the aid of their “precious”. Maybe what is most remarkable is that with all the aid and help they have received banks seem to have lost some more supporters in terms of investors.

Meanwhile there is some happier news from one present and two past players from West Ham United. From the Guardian.

A year ago, former England captain Rio Ferdinand, West Ham United skipper Mark Noble and ex-Brighton striker Bobby Zamora turned up at the conference to unveil their Legacy Foundation – a regeneration charity with a plan to build a series of social and privately rentable housing schemes, backed by private investors.

The stars (all three of whom have played for West Ham) are coming back to present their first project, worth £400m, to build 1,300 homes on a 22-hectare site in a run-down area in Houghton Regis near Luton.



Prospects for the UK housing market and house prices

It is hard to keep housing and property out of the news in the UK. In the run-up to the Brexit referendum there was the announcement from Chancellor George Osborne that house prices would fall by 18% is the UK voted to leave the European Union. As the UK did leave we will find out whether that was accurate or more like his forecast that interest-rates would rise which faces a reality of ever lower Gilt yields. Yesterday the UK issued a 5 year Gilt at a yield of 0.38% which was both an all time low and below the Bank Rate of 0.5% which gave a clue as to where the wind is blowing. Here is some news on the front from the Guardian.

The lowest 10-year mortgage rate on record is set to be launched on Friday….Coventry Building Society is to offer a rate of just 2.39% for borrowers willing to fix their loan for a decade.

There has been an effect on commercial property funds where 5 others have followed Standard Life in declaring a suspension usually of 28 days. If we look back we see that they had previously had such a good run that they were vulnerable and of course under a thinnish veneer they are always illiquid. Unless you can sell a shopping centre or mall quickly and those of course poses the questions of to whom  and at what price? Also as soon as one went the others were likely to be like dominoes. Should it go very wrong then a familiar crew will be left holding the baby. From Bloomberg.

The major banks have 69 billion pounds of exposure and smaller banks and building societies hold the remaining 17 billion pounds.

According to the analysts quoted this is a sign of success, a view unlikely to be shared by those owning bank shares.

House Prices

Today has seen an intriguing set of data from the Halifax.

House prices in the three months to June 2016 were 1.2% higher than in the three months to March 2016….Prices in the three months to June were 8.4% higher than in the same three months of 2015 .

Actually they rose by 1.3% in June itself which did not show much sign of pre Brexit referendum nervousness. I also note that the thoughts and indeed for first time buyers hopes of house price falls after the changes to Buy To Let stamp duty in April have so far failed to happen.

It is quite extraordinary that house prices have maintained annual growth which even at a slightly lower annual growth rate of 8.4% is way ahead of wages growth (2%) or economic growth (~2%). Looked at like that not only would a period of decline not be a disaster more than a few would see it as good news. Along the way we have seen the first time buyer earnings to house price ratio go back above 5. Sadly it is no longer available but must have got worse.


The latest monthly Economic Review has a section which looks as though it has been written by someone who have been living in a cave for quite some time.

Generally, house prices grew strongly in Great Britain before the economic downturn.

I am also not sure about the use of Great Britain when they say they use data from the property service of Northern Ireland but let us carry on.

there has been resurgence in recent years.

However we then get an analysis of the relationship between their data for wages and house prices since 2005 and as you can imagine my eyes lit up at that. So what do they tell us?

Before the 2008 downturn, the annual percentage change in house prices was higher than annual weekly earnings in the UK.

That is hardly news on here but let us bring this more up to date.

From 2012 to mid-2013, annual changes in house prices and annual weekly earnings remained similar; since then, house price growth has outstripped earnings growth……Affordability has decreased in recent periods, with annual house price inflation at 8.3% in April 2016, while the annual increase in earnings was 2.5%

Oh and the ONS has slipped away here from the official view which is that lower mortgage rates has improved affordability. If we move to the ratio between house prices then we see that we are almost back to what was supposed to be one of the causes of the credit crunch.

Prior to the economic downturn, the house price to earnings ratio in Great Britain followed an upward trend due to strong house price growth outstripping wage growth, with the average house price up to 8.5 times the average wage at an annualised level in mid-2007……..The ratio did not markedly increase until late 2013, when a resurgence in house price inflation and relatively slow growth in AWE caused the ratio to increase from 7.2 in August 2013 to beyond 8.0 after August 2015.

It will be above 8.1 in May 2016 if their numbers follow the same pattern as the Halifax/Markit series. Please note the use of the number 8 which replaces the number 5 used for earnings if you look at individual rather than joint numbers. Makes a difference does it not?!

Figure 21- House price to earnings ratio for Great Britain

Some of this represents the London effect which has pushed the average numbers higher and there are clear regional differences as for example North East England has become more affordable. There is a data swerve used here for which I apologise on behalf of the ONS but we get this if we switch to annual wages data (ASHE) which is only up to April 2015.

London continued to be the least affordable region in the 2014 to 2015 financial year, in which the house-prices-to-earnings ratio was 9.2. In the North East, the ratio has declined sharply since the economic downturn and stood at 4.0

What next?

I would expect the following to take place. Firstly some deals will be stopped due to uncertainty and on an anecdotal level someone told me they were doing that only yesterday although theirs was a wait and see approach. So volumes will take a dip as will  at least some prices. Again at this stage such news is anecdotal.

Not convinced this is true in London. Agent rang yesterday with a post Brexit 10% reduction…and sounded desperate. ( @beachcomberpage )

Added to that might be  foreign owners who are facing currency losses and fear property price losses as well and in a way this was reflected by UOB of Singapore stopping lending for London mortgages last week. Although the 11 quarters in a row of falls in house prices in Singapore was no doubt also a factor.

On the other side of the equation is this from the Guardian.

The plunge in sterling following the UK’s decision to leave the EU has prompted a flurry of interest in luxury homes in  London from overseas buyers, who stand to save about 10% of the cost of buying a £1m property, a property consultancy has claimed.

The caveat is of course “a property consultant has claimed” and I note the intriguingly named Mr. Cleverly has quoted the changes in UK Pounds when surely foreign buyers would be interested in the price in their currency. But for new buyers the currency fall is true.


We find ourselves in a time of heightened uncertainty looking at a UK property market which has become increasingly unaffordable to domestic buyers. There is a nuance here which is that this is massively true in London and influences the area around it. It is less true in the North of England for example where prices have at least adjusted to some extent to weak wages growth.

If we look at the Bank of England which lit the blue touch-paper for the subsequent house price growth with its July 2012 Funding for Lending Scheme then I expect a response next week. It may be too early for a more technical response such as a new rebadged FLS aimed at small business in theory but boosting mortgage lending in practice but a Bank Rate cut and more QE have been heavily hinted at by Bank of England Governor Mark Carney. So the band seems set to play on as we wait to see if they are on the Titanic or not.

Meanwhile let me offer you some insight on HSBC from @DavidKeo of the FT.

this price move may be in either direction

It was about the UK Pound £ and of course they missed the possibility it would be unchanged.

Oh and whilst there may not be many of these there will be some. What about those with a UK property but a mortgage in a different currency?

Don’t mess with Mario

The Slovenian police have upset Mario Draghi by raiding the office of the Slovenian central bank. Apparently when Mario told us that the ECB was a “rules based organisation” he did not mean the rule of law. In response here is the new ECB theme song featuring MC Hammer.