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EXPLAINED: What’s behind Copenhagen’s skyrocketing property prices?

From pandemic preferences to interest rates and internationalisation trends, a number of factors have dramatically impacted Copenhagen’s housing prices. The Local’s contributor Sarah Redohl explains what house hunters need to know. 

EXPLAINED: What’s behind Copenhagen’s skyrocketing property prices?
Photo by Mihai Moisa on Unsplash

When the Covid-19 pandemic first struck, Birgit Daetz, director of communications at Danish property portal, said they and other experts expected a large decrease in housing sales. 

“What happened was the exact opposite,” Daetz said. Initially, there was an increase in summer home purchases, resulting from limited international travel. “Later on, the housing and apartment market joined the boom.”

The rise in prices has been particularly steep in Copenhagen, which has seen the supply of housing for sale drop by half from May 2019 to May 2021. Meanwhile, sales prices in Copenhagen Municipality and Frederiksberg have increased 28 percent, according to Boligsiden’s data.

“Although we’ve seen high prices in the innermost part of the capital for quite some time, now this development has spread to municipalities further away from central Copenhagen and expanded to detached houses,” Curt Liliegreen, director of the Housing Economics Knowledge Center (Boligøknomisk Videncenter), said.

Within Copenhagen, Nordhavn saw both the largest decrease in housing for sale (71 percent) while also seeing the largest price increase (37 percent) from May 2019 to May 2021. Indre By had among the smallest reductions in supply (21 percent) and Frederiksberg, the smallest price increase (20 percent).

“The pandemic has stimulated demand with many people wanting more space, but it’s also suppressing supply because many people want to stay in their house,” Liliegreen said. A recent survey performed by the Centre found that 40 percent of respondents have searched for housing in the past three months, the highest number the Centre has ever recorded.

Although people are “not necessarily moving out of Copenhagen as you might see in London or U.S. cities,” Liliegreen said, “a lot of people are moving from a small flat to a bigger flat and from a flat to a house.” 

In total, he said, Copenhagen only had a net loss of around 3,400 residents in 2020, with the departure of 61,400 and the addition of 58,000 residents.

How has this impacted the rental market?

The trend toward more spacious housing can also be seen in the rental market, said Thomas Hornbæk, chief marketing officer at the housing search platform Although they initially saw a shift away from apartment searches within city centres during the first few months of the pandemic, search trends have since returned “almost back to normal.”

Hornbæk has noticed interest in three- and four-room apartments is up. “With people spending more time at home, they’re willing to invest more in their living space, both in terms of inventory and space,” he said.

One of the main ways the pandemic has changed BoligPortal’s operations is the influx of properties previously listed on short-term rental sites like AirBNB. 

“Instead of renting out apartments on AirBNB, people are looking for longer-term tenants,” Hornbæk said. “That’s now part of the housing inventory available for residents.”

“Another factor stimulating the difference in supply and demand is that new construction is down in Copenhagen,” Liliegreen said, adding that not as many apartments were completed in 2020 and 2021 as in years past. 

“Though, I think that’s a temporary thing because there are many major housing projects anticipated in Copenhagen,” Liliegreen said.

What can we expect in the near- and long-term future?

Denmark’s housing market hasn’t faced such a gap between supply and demand since the Danish property bubble in the early 2000s. According to a report from Bloomberg news, the following correction of the market was painful as housing prices fell, resulting in a selloff and price slump.

“There is fear that the market could collapse once the pandemic is under control, interest rates rise, and people return to normal levels of interest in the housing market,” Liliegreen said. “That’s why this conversation is raging now in Danish media.” 

Although price control discussions are underway, it seems the market is beginning to normalise on its own. Boligsiden data shows that more houses have been put up for sale than have been sold in the past two months.

“The decline in the number of trades in recent months is an indication that the unusually high activity in the housing market is slowing down,” Daetz, from said. “The housing trade is still well above normal, but we are approaching a more natural state.”

The increased supply hasn’t yet resulted in falling sales prices, but Daetz expects prices to stagnate or even fall during the remainder of 2021.

Liliegreen also expects prices to decline, adding that he’s already seen some asking price reductions in Copenhagen’s most expensive areas. 

“Realtors might have put prices up too high, and might now want to sell before any potential political changes in the market,” Liliegreen said. “I think we have seen the worst of these price increases.”

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EXPLAINED: How to restructure and reduce your mortgage in Denmark

Denmark's unique borrowing system has enabled thousands of people to restructure their mortgages this year, cashing in on high interest rates which have caused a drop in market value of covered bonds. We explain how it all works and how you can potentially pay off a sum of your mortgage.

EXPLAINED: How to restructure and reduce your mortgage in Denmark

How does the mortgage system work in Denmark?

Denmark has a unique mortgage model, which is regarded as one of the best in the world.

When you take out a loan to buy a house in Denmark, the bank finances the loan through a covered bond [Danish:realkreditobligation,ed.] What makes the model unique is that you as the borrower know exactly what covered bond is issued to finance the loan.

“This direct link is very special to Denmark,”  Peter Jayaswal, executive director at Finans Danmark told The Local.

“You can follow what the market price is for the bond that is funding your loan in the capital market. A German borrower for example has a mortgage by the German bank issuing a loan using a covered bond. But there is no link, so the homeowner doesn’t know what the bond is.

“In Denmark, you can see it exactly. You can go onto your bank website everyday and follow the market price. That means that we have this early repayment system where I as a borrower am allowed to prepay my loan by buying back at market price the bond that has funded my loan,” Jayaswal explained.

When interest rates are increasing, it means that the price on the bonds is decreasing and this is why thousands of homeowners in Denmark have bought out their bonds this year, at a low market value and paid off a portion of their mortgage. 

READ ALSO: Interest rates encourage Danes to restructure mortgages

So how can I make this early repayment on my mortgage?

The first thing to do is to set up a meeting with your bank so they can assess whether you will benefit from the drop in bond value.

The market price of covered bonds is well documented in Danish media but you can also follow them on your bank’s website or by asking for an appointment with your bank to assess your current mortgage.

“You may at some point in the past have taken out a mortgage of 1 million kroner with a one percent fixed interest rate. To keep it simple, let’s say the loan is without amortisation.  When you took out this mortgage, the bond was issued at 99 kroner meaning that the nominal debt will be around 1,010,100 kroner to give a 1 million kroner revenue.

“Today you can see the interest rates have increased and the price on the bond financing your loan is say 80 kroner. As a borrower you can buy the bond in the market at market price and prepay the mortgage loan. But you only need to take out a new loan of around 808,000 kroner to do this.

“So you can take a new loan out at 808,000 kroner and use this to repay your existing loan and reduce your debt by around 200,000 kroner. This transaction can be done simultaneously by your bank, so you won’t end up with two loans,” Jayaswal told The Local.

What about interest rates on my mortgage?

The interest rate you get for your mortgage can be fixed or variable and they mirror the prices investors pay for the bonds. 

Fixed rate mortgage

Today, the fixed interest rate is five percent. This means that if you decide to buy your bond at the lower market value, you will have to take out a new loan at a higher interest rate.

“Using the example of reducing your mortgage by 200,000 kroner by buying the bond at a low market value, every month you are now paying an interest rate of five percent fixed term, rather than your one percent you had before. So you are paying more each month for the benefit of paying off a portion of your mortgage early and the benefits will decrease over time. 

“You usually break even after around ten to fourteen years but the bank will calculate this for you,” Jayaswal said.

“If you know you’re moving in two to three years, it makes sense to get a new loan with a higher interest rate because you’ll have to repay the loan anyway when you move. But if you think you’ll be in your home a long time, keeping this loan, then you need the interest rate to decrease in ten to fourteen years.

“And that’s the problem because we must be frank and say we can do all the forecasts but in the end no one knows what future interest rates will be, so it has to be the decision of the borrower,” Jayaswal explained.

Variable rate mortgage 

The other option is to take out a variable interest rate mortgage to buy the bond, which today is around three percent. However this carries a risk, as the interest rates are adjusted on a regular basis. F3 loans, for example, are adjusted every three years, while F5 loans have adjustments every five years.

“Changing from a fixed to variable interest rate, to reduce your debt and avoid an increase in interest rate, comes with a risk that you don’t have a fixed rate for 30 years, so you are more exposed and that’s very important be aware of,” Jayaswal told The Local.

On Monday, the company Totalkredit, the largest provider of real estate loans for private homes, auctioned flexible loans with resulting interest rates exceeding 3 percent on the F1, F3 and F5 loan types. That means the interest on these types of mortgages will be at their highest for several years.

According to Finans Danmark, Danish home owners have repaid 337 billion kroner of their mortgages in the first three quarters of 2022. Many of these home owners have chosen to switch to variable interest rates. You can swap back to a fixed-rate mortgage at any time but you also have to be aware that these rates may have increased by then too. 

How do I decide which option to take?

“I always say to people, feel free to go to your bank, ask them to make the calculations for you, so you have the foundation to make a decision”, Jayaswal says.

“Some might think a 30-year mortgage at a fixed rate of one percent is great, especially because today interest rate is five percent. Others won’t mind paying a five percent interest rate for a few years, because they want to reduce their debt today and believe interest rates will decrease. It is up to the borrower to decide.

“It’s not that one option is better than the other, it’s that you have opportunities and this is unique in Denmark,” Jayaswal said.