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What do foreigners need to know about buying a home in Denmark?

After several years of settling down in Denmark, it’s natural for foreign residents to think about buying a home. What’s worth knowing about getting on the property ladder as a non-Dane?

Houses in Greater Copenhagen.
Houses in Greater Copenhagen. It's worth knowing the basics about the process of buying property in Denmark before you set out to purchase your first home. File photo: Mathias Løvgreen Bojesen/Ritzau Scanpix

For some foreign home buyers in Denmark, their first Danish home might not be the first home they have bought, and there will be a few differences in rules to take into account.

For others, Denmark might be the place where you take your first step onto the property ladder.

In either case, there are several rules and facets of the Danish housing market that are worth knowing when you set out.

I have savings, am a permanent resident in Denmark and want to buy a home. What should I do?

Unsurprisingly, the first step is to get approved for a mortgage or, in Danish kreditgodkendt.

“Then the thing to do is go down to a bank and get a købsbevis [mortgage certificate, ed.],” Mikkel Høegh, department director for real estate economics with Jyske Bank, told The Local via email.

“Here you will have a meeting at which you are pre-approved to buy a property up to a certain amount,” Høegh said.

The meeting, which takes place with an advisor from the bank, involves setting out a budget and looking at the applicant’s tax information to get an overview of their personal finances.

“Once you have been (approved) you can start house hunting,” he said.

The certificate is based on a calculation of “what amount you are in a position to buy a property for,” Lise Nytoft Bergmann, real estate economist and senior analyst with bank Nordea, told The Local.

House hunting can initially be done online, while buyers should talk with their families about how the see their future home, Bergmann advised.

“Whether it’s location that’s given highest priority, or the number of square metres, how modern a property… have these thorough conversations with the family about what you see as most important,” she said.

Are there any rules relating to buying a home that apply specifically to foreign nationals?

“There are no special rules for foreigners as such,” Høegh said.

Danish mortgages are based on the prices of the house being purchases, and buyers are approved to buy for that amount, he explained.

“The next step is then to find the property. When it’s been found, the property is what guarantees the loan. This means that the mortgage lender has a guarantee in the property. So it’s the property that is most important here,” he said.

“The buyer must pay at least 5 percent (of the price of the house) upfront,” he noted.

What if there’s a chance I might move back home (or somewhere else) in future? Should I still buy a house in Denmark?

“There some overheads which are connected to buying a house,” Bergmann said.

“They’re not entirely small, and so therefore it’s an advantage to spread these costs out over as many years as possible,” she said.

These include a registration fee which must be paid to the state of 1,750 kroner plus 0.6 percent of the purchasing price; and registration of the mortgage deed (pantebreve) of 1,730 kroner plus 1.45 percent of the purchase price.

Banks and mortgage lenders must usually also be paid for their work related to the purchase. This can include assessing the buyer for the mortgage certificate and for issuing it, valuing the property, and producing documentation as well as for consultancy. These costs can vary between financial institutions.

It may also be necessary to take advice from third parties such as lawyers, architects or electricians. The costs of actually moving, insurance and renovation must also be considered.

“We usually that you should have a timescale of a minimum of five years, and preferably longer,” Bergmann said in relation to staying in Denmark after buying a home.

What can I do to make sure I get the best mortgage offer?

“In Denmark the prices of mortgages are relatively similar and there is no difference between people and the price they are offered,” Høegh said.

“As such, what is important is finding a property that can be turned over, in other words you should keep in mind that another buyer must come after you,” he said.

“In addition to this, the price of the mortgage is related to how much of the loan is in the property. The more money you bring yourself [through the deposit, ed.], the cheaper it is to loan,” he said.

Both fixed and variable interest rate mortgages are available in Denmark, and the terms for these may stand out from what is available in other countries.

“A quite unique thing in Denmark is that you can get a fixed interest rate mortgage for 30 years. There are very few places in the world where you can do that, so when we say fixed rate we don’t just mean five or eight years,” Høegh said.

“Additionally, a mortgage in Denmark is such that the borrower can always go to market interest, so there is also nothing like a penalty interest which you see in other countries,” he said.

“Denmark has therefore an incredibly efficient mortgage system which everyone who buys a property has access to,” he said.

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PROPERTY

EXPLAINED: Denmark’s new property tax rules from 2024

New property tax rules (boligskatteregler) take effect in Denmark in 2024. How will they affect homeowners and first-time buyers?

EXPLAINED: Denmark’s new property tax rules from 2024

The new tax rules, which will impact property value tax rates (ejendomsværdiskattesatser) and land value tax (grundskyld), were originally ratified by the previous government in a 2017 bill. In general, they mean the rates for both of the above property taxes will fall in most municipalities, according to the Danish tax ministry.

A public real estate appraisal (ejendomsvurdering) forms the basis for taxation of your property. According to the tax ministry, many homeowners will find that new appraisals issued from September 2021 are higher than preceding valuations from 2011 and 2012. That is partly due to increasing house prices in recent years.

In order to avoid much higher property taxes as a result of higher valuations in the public real estate appraisals, the 2017 political agreement secured a reduction of the two forms of property tax, effective from 2024.

Homeowners who appear to be facing higher property taxes due to the new appraisals – even though tax rates will be reduced – can be eligible for a tax subsidy. This can occur in cases where a property has seen a large increase in its valuation.

In short, the new tax rules will not result in taxes for existing homeowners in 2024 that are higher than they would have been if the current rules (still in effect in 2022 and 2023) were to remain in place.

However, the tax subsidy mentioned above does not apply to new homeowners from January 1st 2024. This is because first-time buyers will be expected to “plan their finances in accordance with the new tax rules,” the ministry states.

This could have a knock-on effect on the housing market, according to financial media Finans, which wrote in November 2021 that people buying apartments would be likely to demand reduced prices as 2024 approaches, to offset the higher taxes they are likely to pay.

READ ALSO: Danish apartment sales cool to eight-year low

An analysis by Finans and Nykredit showed that apartment prices in major cities, particularly in and around Copenhagen as well as in Aarhus and Odense, will typically have to fall by around 5-10 percent for total costs for now buyers – mortgage plus tax – to be unchanged compared to the outgoing rules.

The new rules and subsequent increased taxes will hit first-time (in 2024) buyers of apartments hardest, according to Finans. That is because many buyers will not be able to afford the same mortgage they previously could, due to the higher property taxes.

One reason apartments are more likely to get tax increases under the new rules is that the valuation appraisal system left them subject to lower property tax relative to houses.

“Apartments have been too lightly taxed for many years because the land under them is massively undervalued compared to appraisals of detached house land,” Mira Lie Nielsen, housing economist at Nykredit, one of Denmark’s major banks and the country’s largest mortgage lender, told Finans last November.

People buying apartments before 2024 could also push prices down knowing they risk making a loss if they sell shortly after the tax reform takes effect.

From 2024 onwards, the two property taxes – ejendomsværdiskattesatser and grundskyld – will be pegged to appraisals of the property and land value such that if these fall in valuation, so will the property tax.

If the valuation of the property, and thereby the property tax, increases after 2024, homeowners can fix the rate of (indefryse) their taxes by postponing payment of a part of the property tax. The frozen tax payment becomes due (and is calculated) when the property is sold. Alternatively, the increased taxes can be paid in instalments.

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