How banks in northern Europe are leading the way for domestic mortgage holders
PUBLISHED: 10:08 23 August 2019 | UPDATED: 10:08 23 August 2019
Last week, Scandinavia proved that there was more to life than patterned jumpers, says Peter Sharkey, as its largest lender, Nordea Bank, revealed that it was launching a 20-year, fixed interest rate mortgage – with a 0% interest rate.
There was a time, not that long ago, when banks were considered solid, well-respected institutions upon which we could rely to show discretion, prudence and to behave in a manner befitting their status.
How times change.
Let me give you an example. I was recently charged £22 by a bank after they claimed to have completed what they called a 'complex calculation', even though I'd done the arithmetic for them. I wrote back, reminding them they were a bank and surely capable of calculating compound interest. I attached an invoice for £22 to cover the cost of the letter and the bank cancelled their ridiculous fee.
Far too often, banks' behaviour makes the blood boil. Everyone has a tale to tell of being ripped off, overcharged or simply ignored by an industry which is now viewed with suspicion (at best) by wary customers. But could a change be on the way?
On either side of the Atlantic last week, the consequences of unexpected action by two banks provided their customers with a decidedly welcome boost.
In Canada, customers with credit cards issued by JP Morgan Chase were told they couldn't make any card repayments because the bank had cancelled their debt. That's right - in one fell swoop, Chase wrote off everyone's credit card debt. Imagine how some people, lying awake in bed the night before, worrying about how they could make their regular monthly credit card payment must have felt when they heard the news. 'Over the moon' doesn't begin to describe it.
One lady, checking her outstanding card balance online, expecting it to be $883.67, saw it had dropped to zero. She called Chase, only for the woman at the other end to confirm there was nothing more to pay. "Take it as a gift," suggested the Chase lady. Take it as a gift? You would want to take her out for a drink!
Chase announced a couple of years ago that it was exiting the Canadian credit card market and stopped accepting new card applications a while back. Nevertheless, instead of selling the remaining debt to a company willing to collect it, they preferred to cancel their customer's indebtedness altogether. Perhaps there was an element of favour-currying involved; if so, it certainly worked.
Closer to home Scandinavia's largest lender, Nordea Bank, revealed last week that it was launching a 20-year, fixed interest rate mortgage. Nothing unusual in that, except the mortgage interest rate is zero. For the whole twenty years.
In one of the finance industry's greatest understatements, Lise Nytoft Bergmann, an analyst at Nordea in Denmark, told Bloomberg that "It's never been cheaper to borrow."
Actually, that's not quite accurate: it currently is cheaper to borrow through Jyske Bank, Denmark's third-largest bank. From last week, customers may apply for a 10-year fixed rate mortgage with an interest rate of minus 0.5%, meaning they could pay back less than the amount they borrowed.
In other words, if you bought a property for £200,000 and paid off your mortgage in full in 10 years, you would repay the bank just £199,000.
What's going on? Is this sudden display of largesse a sign that banks crave our collective goodwill once more, or has there been a purge of some of the more unsavoury characters at the helm of these institutions? Possibly not.
It was probably cheaper for Chase to simply cancel credit card debt in order to exit a market it's been keen to leave for a few years.
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Nordea Bank's announcement, however, is a sign that, in Denmark at least, banks are prepared to take a longer-term view and consider domestic mortgage holders to be a much better risk than some of the alternative lending opportunities they have. It also suggests that Scandinavian banks expect property values to rise over the long term too.
Should we prepare for similar displays of banking generosity here? Don't hold your breath. But just in case one of our banks breaks rank in an attempt to attract mortgage customers, having even part of the deposit with which you intend buying a property ready would make good sense. Get saving.
TAM Asset Management Ltd can help people save for everything from a deposit on a property to their retirement in a variety of Investment ISA portfolios. For further details, please visit the MoneyMapp website.
THE WEEK IN NUMBERS
With a worryingly large number of EFL football clubs on the cusp of severe financial distress and possible extinction, new figures show that in 2017-18, the average Championship club spent 106% of its income on player's wages, a rise from 99% the season before.
Data published by NHS Digital this week revealed that among younger teenagers who admit to having drunk alcohol, 71% of them revealed they had obtained it from their parents.
James Bond fans must wait seven months before the next movie in the timeless franchise is released next year (on 3rd April). Incredibly, it will be the 25th Bond film in all. Given how long they take to bring to the silver screen, that figure makes some of us feel old.
For more financial advice, check out Peter Sharkey's regular column, The Week In Numbers.