Paula Christina Santos has managed to take out a dream mortgage: the bank pays her, writes The Wall Street Journal, quoted by money.bg.
The interest rate on it is changing, but at the moment it is minus 0.25%. Thus, every month, Santos’ bank, Banco BPI SA, deposits in its account the interest on the € 320,000 loan it took out in 2008. In March, it received around € 38.
This type of relationship with the bank began years ago, when the European Central Bank cut interest rates below zero in an attempt to support the continent’s economy, which is suffering in the midst of a debt crisis.
Negative interest rates have helped everyone have access to cheap financing, from governments to small companies.
They also encouraged households to take out loans and spend. And they broke a basic rule of lending by forcing banks to owe their customers, not the other way around.
Cases like Santos were expected to be rare – and no longer exist. After the ECB cut interest rates below zero in 2014, eurozone economies recovered and the central bank was expected to raise them again.
But the coronavirus changed the situation.
And while the economic problems of the Old Continent continue, negative interest rates are still present.
As a result, a number of borrowers in Portugal, as well as in Denmark, where interest rates fell below zero in 2012, are in an unusual situation where they receive interest on their loans.
Estimates from 2019 by Deco, a consumer protection group in Lisbon, show that 30,000 mortgages in Portugal have negative interest rates. The organization says their numbers are probably double today.
Many Europeans sign contracts in which interest rates fluctuate and are influenced by interest rate indices such as Euribor, which monitors how much it costs European banks to borrow money from each other.
Santos pays 0.29% on the quarterly Euribor. When he took the loan in 2008, the index was about 5%. In recent months, it has fallen and is now around minus 0.54%.
The Portuguese state-owned bank Caixa Geral de Depositos SA estimates that 12% of mortgage loans currently have a negative interest rate. Their number rose to 50% last year, according to a source in The Wall Street Journal. Santos’ bank, BPI, says it has paid € 1 million in interest so far.
In Spain, where most interest rates on most mortgages are linked to Euribor, the situation is similar. But the state has passed a law banning interest rates from falling below zero. Portugal did the opposite in 2018 and forced interest rates to reflect the market situation.
There is no information on how many mortgage loans in Spain have zero interest rates at the moment.
In Denmark, the number of borrowers receiving interest is increasing, but in most cases they still pay their banks for different fees. The situation is the northern state is a little different. There, banks do not finance mortgages themselves, but instead sell bonds to investors at a certain interest rate and then lend to customers at the same level.
Nykredit’s calculations show that over 50% of loans with a maturity of up to 10 years have negative interest rates.
The flip side of the coin is that a number of eurozone banks are beginning to demand interest from their customers who deposit funds – saying they can no longer absorb negative central bank interest rates.
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