Danish homeowners refinance loans as interest rates rise 

An increasing number of homeowners in Denmark are restructuring their mortgages due to changing interest rates.

home for sale in denmark
Many homeowners in Denmark are considering new mortgage plans to take advantage of higher interest. Photo: Mathias Svold/Ritzau Scanpix

Lenders made nearly 13,700 offers to restructure homeowners’ mortgages in the month of April alone, news wire Ritzau reports based on an analysis by financial sector interest organisation Finans Danmark.

Private homeowners and businesses alike have shown interest in restructuring their loans, according to the report.

Higher interest rates in recent months form a key part of the explanation for the trend.

When interest rates rise, the price of the bonds behind the loans will fall and can therefore be redeemed at a lower rate than they were taken out at.

As such, a homeowner can choose to convert their fixed-rate loan into a higher-rate one and thereby cut their outstanding debt.

“That restructuring formed the majority of loan offers in April is testament to the fact that this is something that interests homeowners,” Finans Danmark CEO Ane Arnth Jensen said in a press statement.

As of May 16th, the interest rate on a fixed-rate loan is 3.5 percent, up dramatically from 1.5 percent at the end of 2021 and 0.5 percent at the start of 2021. 

“Currently, it is especially for homeowners with loans of 0.5, 1.0 and 1.5 percent where a conversation (about restructuring their mortgage) would be worth considering, as they can cut a good chunk off the residual debt,” Brian Friis Helmer, private economist at Arbejdernes Landsbank, told Ritzau. 

“Where things usually would have revolved around reducing interest, homeowners are going up in interest on this occasion,” he added.

The Finans Danmark analysis shows that businesses have also joined the wave of loan restructuring to secure their real estate.

1,900 businesses requested mortgage offers in April with a view to restructuring their property loans.

READ ALSO: ‘Prove you’re going to stay’: The challenges of buying a home in Denmark as a foreigner

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House prices in Denmark fall as more properties put on market

The Danish housing market has seen a changing trend during the summer with the price of both houses and apartments falling.

House prices in Denmark fall as more properties put on market

July saw the first average decreases in the prices of both houses and apartments for several months.

The price of houses fell by 1 percent, whole privately-owned apartments on the market fell in price by 1.5 percent, new data from real estate site Boligsiden show.

The number of apartments on the market has increased by 7.2 percent, meanwhile. For houses, there was a 3.8 percent increase to the number of properties available.

The numbers observed by estate agents in July indicate a new reality on the housing market, according to housing economist Mira Lie Nielsen of Nykredit.

Nielsen told news wire Ritzau that “buyers now have a better set of cards in their hands.”

“The supply has become bigger. Now prices are also starting to give way. Sellers can certainly feel this,” she said.

“Prices have begun to give way to the pressure from increasing interest, higher inflation and the economic uncertainty that has built up,” Nielsen said.

That assessment was echoed by Arbejdernes Landsbank senior economist Jeppe Buul Borre.

“We are seeing a housing supply that has grown. Earlier in the year, the supply was at its lowest for around a decade and a half. But it’s begun to increase during the spring and summer,” he said to Ritzau.

“On the other hand, it has become more expensive to buy and live in a home. That also means that this demand for housing, which has been extremely high for the last couple of years, is not what it once was,” he said.

The trend must continue for several months before any certain conclusions can be drawn, he also noted, but added nevertheless that the drop seen in July was “probably the start of a further fall” in prices.

“We are looking ahead to a market where heating of housing has become more expensive. Interest rates have also gone up, so when you need to finance the purchase of a property, that has also become more expensive,” he said.

Regional differences in the current trend were meanwhile pointed out by Nielsen, who said that the Greater Copenhagen region had seen a larger increase in the number of properties on the market than other parts of Denmark.

“The marked slowing down of the property market can be seen at the moment in the market for private apartments, where the number of transactions has fallen markedly,” she said.

READ ALSO: EXPLAINED: Denmark’s new property tax rules from 2024