Those who want to buy a home can do gold business right now. Best Bank, the third largest bank in Denmark, applies a negative interest rate for residential loans with a term of 10 years. Such scenarios do not exist in Belgium today.
Danes who take out a ten-year housing loan with Best Bank receive a negative interest rate of -0.5 percent. That means that they have to pay less each month than what they have borrowed. The customers at the Cream Bank, Lenders Bank can also benefit from the current interest rate situation. Anyone who takes out a home loan for a maximum of 20 years with that bank does not pay interest. A 30-year loan with Lenders Bank is accompanied by an interest rate of 0.5 percent.
Negative interest rates in Belgium
In 2016, there was also a negative interest rate in our country. The banks Highest Bank and Fine Bank then came under scrutiny because they refused to lower the interest rate below 0 percent. However, a few customers who had opted for a variable interest rate years before were entitled to negative interest. After a lot of tug-of-war between the Ombudsfin and the two banks, Highest Bank and Fine Bank changed tack.
Since then, almost all banks have included a paragraph in their terms and conditions that states that interest rates cannot fall below 0 percent. This addition means that a negative interest rate is excluded in Belgium today.
Two different worlds
Even those who dream of borrowing money for free will be disappointed. The Cream Banks can apply much lower rates than with us because they finance housing loans in a different way.
In Denmark, the banks use the money from specialized investors to provide loans. These investors can subscribe to so-called mortgage bonds and receive a coupon (interest on the bond) in exchange. Since the market interest rate has been exceptionally low in recent years, the coupons on those bonds have fallen. Those interest rates are immediately passed on to the borrowing families. The lower the coupon, the cheaper it is for borrowers.
In Belgium, on the other hand, the banks use our savings to provide loans. That is also one of the most important sources of income for the banks: converting savings into loans. The banks derive income from the difference between the savings interest rate and the mortgage interest rate. And that is where the shoe pinches. In Belgium, banks are required to pay at least 0.11 percent savings interest (on regulated savings books). This minimum fee ensures that the banks cannot endlessly lower the mortgage interest rate. If they do, the profit margins will come under considerable pressure.
Savers pay the bill in Denmark
Savers in Denmark have less luck. In the Scandinavian country there is no lower limit for savings interest. For example, anyone opening an ordinary savings account at Lenders Bank must be satisfied with an interest rate of 0.05 percent.
Best Bank goes one step further and leaves interest up to -0.6 percent for wealthy savers who have more than 7.5 million dollars on their savings account.