(Bloomberg) -- Germany’s central bank, known for its dry approach to matters of money, has some good news for real-estate buyers: negative-rate mortgages are just fine.
The Bundesbank considers such loans conceivable and would not intervene against them, board member Joachim Wuermeling told Stuttgarter Zeitung in an interview.
Negative interest rates are fast becoming the norm at central banks around the globe. Five years of sub-zero rates in the euro area have left lenders scraping for ways to offset the hit to their earnings. Paying home buyers to borrow money might be a lesser evil, because parking money at the ECB may cost more, the newspaper explained.
In August a bank in Denmark became the first to offer negative interest rates on mortgages. German home loan rates are relatively low, but allowing owners to repay less than they borrow would be uncharted territory.
The European Central Bank wants to encourage people to spend, but banks fear mass withdrawals should they pass negative interest rates on to regular retail clients. Negative-rate mortgages could be the solution.
“Economically it can make sense for a bank to pay negative interest on loans instead of paying even higher interest itself for a different use,” said Wuermeling.
ECB policy makers expect borrowing costs to stay at present levels “or lower” through at least the first half of 2020 and have raised the possibility for a September reduction in the deposit rate from the record low of minus 0.4%. They have also signaled they will restart their bond-buying program if needed.
