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DRIVING

Six things to know about buying a used car in Denmark

Are you dipping into Denmark’s second-hand motor market for the first time? Here are six things worth keeping in mind.

checking a car
There are several things worth knowing your way around when you but a used car in Denmark. File photo: Signe Goldmann/Ritzau Scanpix

Check the vehicle’s history 

You can learn a lot about the car you are considering buying by looking up its history on websites such as nummerplade.net, where you can find information from past synsrapporter or roadworthiness inspections, which are required biannually under Danish law.

In addition to the dates of past road checks, you will be able to check the total kilometres the car had driven at each check – which can help to ensure its mileage counter has not been tampered with. You can also see whether it has been reported missing or has unpaid loans tied to it. As such, you can make sure it is mechanically and legally sound.

Other information provide includes the type, make, model and year of the car, and fuel economy and road tax (grøn ejerafgift) which must be paid on that model.

Ask to see the service book

Cars with well filled-out service books, servicebog in Danish, give you peace of mind as a buyer because they can give a good idea of the vehicle’s condition and maintenance history.

Stamps from authorised workshops show that the car has been regularly checked and serviced, and given regular maintenance with things like oil changes.

You can also see whether the car has been given rust protection treatment if it is an older model, which supplements visual checks of the condition of its paint work and chassis.

Buy from dealership or private seller?

There are several factors to consider when weighing up whether to buy a used car from a private or commercial seller, and these can include your budget and the amount of time you can devote to finding the right motor for you.

If you buy a used car from a commercial seller, existing faults are covered by warranty for two years under the Danish consumer law reklamationsretten. Faults that occur after you buy the car are not covered by this, but commercial sellers sometimes offer guarantees to this end which can be purchased.

Cars bought from dealerships are also likely to have been thoroughly inspected at the company’s mechanical department before being put back on the market, while buying privately is more likely to involve a ‘sold as seen’ type agreement, meaning you have less recourse if there is a mechanical failure following the purchase.

Buying a second hand car privately is likely to be cheaper than buying the equivalent vehicle from a dealer, however, and you are more likely to be able to negotiate the price.

New rule in 2022

A new rule in 2022 relates to whether you are covered by warranty if an issue with your used car shows up after purchase. The formodningsregel, loosely ‘rule of likelihood’ relates to whether a mechanical issue with a used car is caused by a defect that was probably present at the time of its purchase. If this is deemed probable, the buyer is covered by warranty under the consumer law (as detailed above).

Under this likelihood rule, faults that appear on used cars are considered to have been ‘original’ or present at the time of purchase for 12 months after the car changed hands. This applies to all used cars bought after January 1st this year. Previously, the rule only applied for six months.

It should be noted the rule may not apply if the seller (commercial dealer) can demonstrate that it was not present when the car was purchased, even for recent sales.

Fill out a receipt with the seller

It’s common practice in Denmark to fill out a so-called slutseddel or receipt detailing your purchase once everything is agreed with the seller. Both parties agree to and sign the receipt.

You can’t reverse your purchase once you’ve signed the slutseddel. As such, it’s important it this point to make sure you’ve checked everything you want to with the car and are happy with it and all the arrangements relating to its purchase. This does not just mean its working order — it can include things such as financing schemes and the part exchange price of your old car if you are selling to a dealership or commercial seller.

Commercial car dealerships often have their own receipts – although you can check them against your own template if you want to make sure you’re happy with everything that’s included.

If buying privately, you can bring a template of your own, and it’s also likely the seller will have one prepared. Template slutsedler can be downloaded online, like these ones from motorists’ interest organisation FDM.

Sometimes a receipt, particularly when buying from a private seller, might state that the car is ‘sold as seen’ or købt som beset or en gros in Danish. This can be used if there is a known issue with the car that the seller has made you aware of, which may not mean the car isn’t roadworthy but perhaps devalues it (for example superficial rust or older, but not illegal tyres). This should of course be reflected in the price you pay.

Re-register and insure the car

Re-registration of the car in your name is done via the Skat.dk website. You’ll need to login using NemID or MitID. It’s best to do this while you’re with the seller.

When the car is re-registered, the seller’s insurance company is automatically informed by Skat (the tax authority), and their insurance will expire.

When you re-register the car, you can select an insurance company from a drop-down list and choose the anmod om forsikring (request insurance) option, which will give you the obligatory cover (even though you won’t have received a policy yet).

You can contact the company (it may be a company you already have other insurance policies with) and make further arrangements with regard to the policy you have. You can also speak to your insurance company and agree on an insurance policy prior to buying and re-registering the car. The company will then send you your policy once they receive notification from Skat that the car has been registered in your name.

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PROPERTY

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.

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