Christian Hilligsøe Heinig, chief economist at Realkredit Danmark, has reportedly opined that interest rates in Denmark increasingly show signs of moving to rise.
An analysis note, reported by local business daily Børsen, suggests that negative real interest rates could reverse over the coming year. For example, RD’s so-called F1 loan rate could reach 0.1% in 12 months’ time, up from the current -0.15%. The F1 loan type is used in Denmark by homeowners borrowing money for residential property. Such a change in the rate outlook suggests a 0.25% swing.
Another loan type, F5, is seen as swinging by 0.65% over the coming year, to reach 0.9%. While small in overall figures, the implications for the Danish housing market of a broader shift to positive interest rates is of significance, as it is for the local bond market, where so-called covered bonds, issued to fund mortgage borrowing, constitute a significant asset class for institutional investors.
Børsen notes that the expectations, if upheld, would mean an additional DKK3,350 (€450) annually after tax on an F1 loan of DKK2m (€268,000).
The changes also mean that mortgage borrowers may start to look more closely at fixed rate loans, versus the ‘F’ type loans, which incorporate various floating rate elements.
Driving the change in rates are expectations that rates in the US will go up – three times in 2018, according to RD’s chief economist – while certain members of the European Central Bank are already arguing for that institution to not extend its bond purchasing programme amid ongoing signs of eurozone recovery, according to comments in the note.
Denmark’s interest rates have been pushed to negative levels because of its monetary policy, which pegs the Danish krone to the euro. Its central bank, Danmarks Nationalbank, currently offers a lending rate of 0.05%, but a rate of -0.65% on certificates of deposit.