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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Will house prices in Denmark ever fall?

House prices in Denmark have increased consistently in recent years, making it harder for first time buyers to get on the property ladder. But a reversal in the trend can be expected by 2024, a bank said on Wednesday.

Will house prices in Denmark ever fall?

Increasing interest and inflation will cause house prices in Denmark to fall by the end of next year, Danish bank Handelsbanken said in a new prognosis published on Wednesday.

The bank predicts an overall fall in property prices of between 10 and 15 percent by the end of 2023, according to the analysis.

“And we would certainly not rule out such marked price drops in the most expensive areas like the apartment market in Copenhagen, which will also be impacted by a property tax reform that takes effect in 2024,” the bank’s senior economist Jes Asmussen wrote in the analysis.

High employment levels will help place the Danish economy in a strong position once it reaches more difficult times, according to the analysis.

The war in Ukraine has contributed to instability which has helped push inflation upwards to levels not seen since the early 1980s.

READ ALSO: Food and energy prices rocket as Danish inflation hits 40-year high

While the consumer price index in April was 6.7 percent higher than last year, Handelsbanken expects inflation for the year as a whole to be around 6.2 percent.

“And although it is expected to fall next year, we will probably have to get used to inflation being higher than we have been used to for many years,” Asmussen wrote.

High inflation and raised interest rates are a bad combination for home buyers who will see their buying potential diminished, the bank concludes.

But predictions of lower property prices in the future are subject to uncertainty because of the war in Ukraine and its potential to cause further inflation.

Asmussen nevertheless said it is not a question of whether house prices will fall, but when and by how much.

“We expect that the many headwinds for the housing market will lead to price drops for the country as a whole, and these will become clearer after the summer,” he said.