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How does Denmark’s state-guaranteed mortgage scheme work?

Since July 1st, banks in Denmark have been able to participate in a state-guaranteed scheme designed to promote home ownership outside of cities.

How does Denmark’s state-guaranteed mortgage scheme work?
A new Danish government scheme aims to encourage banks to approve mortgages in rural areas. Photo: Signe Goldmann/Ritzau Scanpix

The state-guaranteed mortgage scheme, “Lån på landet” (‘Loan in the Countryside’) has 17 participating banks and institutions at the time of writing. It took effect for three years from July 1st.

The scheme provides a state guarantee on a proportion of a mortgage taken out under the arrangement.

Customers at the banks can therefore benefit from having the Danish state as a guarantor on a part of their mortgage if they choose to make use of the scheme, which is designed to boost home ownership in provincial regions.

Recent years have seen reports that banks in some cases turn down mortgage applications in rural areas because the postcode is undesirable.

“Denmark is too small a country for such big differences as those we see because of the uneven housing market,” business minister Simon Kollerup said in a statement.

“That is why it’s so important for us to create opportunities to get a state guarantee on a proportion of the mortgage out in our rural districts. I’m pleased to see so many banks are prepared to offer these loans,” he said.

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

The 17 participating banks and institutions at the time of writing are:

  • Lån & Spar Bank A/S
  • Kreditbanken A/S
  • Broager Sparekasse
  • Sparekassen Thy
  • Arbejdernes Landsbank
  • Middelfart Sparekasse
  • Nordfyns Bank
  • Nordea Danmark
  • Vestjysk Bank A/S
  • Nykredit Bank A/S
  • Nykredit Realkredit A/S
  • Totalkredit A/S
  • Sparekassen Danmark
  • Fynske Bank A/S
  • Simpel Kredit Ejendomsselskab ApS
  • Hvidbjerg Bank A/S
  • Sparekassen Sjælland-Fyn A/S

How does the scheme work? 

The model makes it easier to be approved for a mortgage in eligible regions via the state acting as a guarantor for 60-90 percent of the value of a home if the mortgage cannot be approved under normal conditions.

Certain other criteria must apply for the state guarantee scheme to be available: its sale price must be less than 10,000 kroner per square metre and it must also be located in a postcode area where the average sale price is less than 8,000 kroner per square metre.

If the sale price of the property is less than 8,000 kroner per square metre, the criteria for the average sale price in the postcode area does not apply.

An example provided by the Danish Business Ministry is as follows: A family wishing to take out a mortgage of 1 million kroner to purchase a home with an area of 130 square metres can be granted a state guarantee for part of the mortgage if the issuing bank decides the guarantee is necessary for it to approve the loan.

In this case, the state will guarantee 90 percent of the loan for 60-90 percent of its amount, which works out at around 270,000 kroner. This means that the bank is only carrying 10 percent risk for this portion of the mortgage, making it more attractive for the bank to approve the loan.

A fee system ensures that the state guarantee system is only used in cases where banks would not approve the mortgage under normal conditions.

Where in Denmark is it available? 

Real estate media Bolius in an analysis published in July 2022 found that around 200 postcodes in Denmark could qualify for the guarantee system. These are located primarily in coastal areas far from major cities. A search function can be used within the article to check whether a specific postcode fulfils the criteria.

It should be noted that, even with a state guarantee available on part of the loan, it remains the final decision of the bank whether to approve a mortgage.

Therefore, the extent to which the scheme will encourage banks to approve more mortgages in rural parts of Denmark is hard to predict.

The decision rests on the bank’s assessment of the customer’s finances and the security of the loan in the short and long term, Bolius writes.

For rural locations, potential to sell the house without a loss, particularly in areas undergoing depopulation, can play an important role. This is because the bank risks making a loss in the event of foreclosure.

Additionally, lower house prices in rural areas mean smaller loans. These are less attractive for banks because the profits on smaller mortgages are also smaller.

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What you need to know about Denmark’s housing ‘energimærke’

Denmark uses a graded marking system for buildings including houses, indicating energy efficiency and giving important information to homebuyers.

What you need to know about Denmark’s housing 'energimærke'

The energy marking – called an energimærke in Danish – is an indicator of the amount of energy a building uses and is a form guidance that can be used by potential buyers of a property, the Danish Energy Agency (Energistyrelsen) explains.

In addition to being an easy-reference grading that is attached to a property, the system also provides an outline of valuable improvements that could be made to the building’s energy properties.

Houses, public buildings and business properties are all given an energy mark, but people hoping to become homeowners in Denmark are naturally most likely to be interested in how the system works for the first of these three categories.

A building must be given an energy marking whenever it is put up for sale or rented out. You’ll see the relevant letter on listings on estate agents’ websites, allowing you to compare the energy markings of different properties.

The marking given to a building can range from A to G, with A the best rating and G the worst.

The ‘A’ score is further divided into three sub-scores: A-2020, A-2015 and A-2010. The more recent the year, the better the rating. These were introduced after new types of building and low energy houses were developed and are usually only seen on new builds.

What do the letters mean?

The energy markings are based on calculations of the energy consumption of the property, which in turn indicates how efficient it is.

The marking is given following assessment by a consultant who takes measurements and looks at factors including the quality of the insulation, windows and doors and the heating system. Overall energy consumption is then calculated, factoring in standardised values for weather, number of occupants and use patterns.

It’s worth keeping in mind that this calculated energy consumption (beregnet forbrug) on which the energy marking is derived can be different from the actual consumption of the occupants.

For example, some people tend to save on energy use in their homes by switching off lights, taking cold showers and using appliances at night, while others leave windows open when the heating is on or have occupants with high-use habits, such as people who work from home or spend extended hours using desktop computers for gaming.

READ ALSO: How people in Denmark are changing their energy use to keep bills down

This means that the actual energy consumption of the house or building depends on who is using it. The energy marking is based on standardised, assumed consumption values. It provides information on the quality of the building, rather than on how it is used currently.

Additionally worth noting is that the energy used to supply a building is only part of the calculation when assessing the grade it should be awarded. Also factored in are the technical properties of the hardware, such as a water pump, installed in the building.

The type of energy used to supply the building and the way it is produced also plays a role. Electricity, district heating, oil, gas and firewood all have different ‘factors’ which are accounted for in the overall calculation. These values are not static: a building’s energy marking can change if it gets a new energy source as national or regional infrastructures or technology are changed.

These energy factors come from an EU building directive that forms the framework of Denmark’s energy marking system.

You can find the energy marking of any building in Denmark on the Energy Agency’s SparEnergi.dk website.

Why is the energy marking important when buying a home? 

A good energy marking tells you that a house or apartment is relatively cheap to heat and holds in heat well while also holding up to ventilation needs, real estate media Bolius notes.

It can also tell you that a building has efficient heating sources or something like solar panels, which will help give it a better grading.

The current climate of high energy prices mean that the energy marking can make a huge difference in your living costs. The same house heated by an ageing individual gas heater will be much less efficient – and have a lower marking – than one on the district heating network.

READ ALSO: European electricity prices soar as tough winter looms

Homes with good energy markings can often be sold for more than ones with worse ratings, if all other factors are equal.

Potential homebuyers should be interested in the energy rating of a house or building because it gives an idea of the condition of the property in terms of its energy efficiency: how well insulated and economical it is, how much it costs to heat up and how much electricity it is likely to use.

When houses are put on the market, sellers are obliged by law to provide an energy marking (with the exception of properties under 60 square metres, but a report can also be requested in these cases). Energy markings are valid for 10 years and can normally be reused within this timeframe, unless major changes are made to the building.

This means that a report is produced or already exists, telling interested buyers not only what the rating of the house is, but also what potential improvements could be made to make it more efficient.

A report might, for example, state that added roof insulation or switching out an individual gas heater and joining the district heating network would pay off in the long term through saved energy costs.

The report helpfully points out three specific places in the building which are the most suitable for energy improvements, Bolius notes, while also providing information on all other potential upgrades.

In addition to potential savings on energy, you can also see how much you will reduce CO2 emissions by carrying out the recommended renovations.

What should sellers be aware of?

Sellers are responsible for ensuring an energy marking is provided when they put their house on the market.

If the property is being sold using an estate agent, the agency will normally arrange this.

People who own apartments must request the assessment through the association (ejerforening or andelsforening depending on the ownership structure) that manages the building. This is because the energy marking is not calculated based on the individual apartment, but on the entire building within the relevant ownership association.

Sellers may also consider carrying out energy renovations before putting their house on the market. According to Bolius, several studies have shown that a better energy marking results in a better selling price. The average house will net the seller an average 500 kroner extra per square metre for every letter by which the energy marking is upgraded.

A subsidy scheme for energy renovations, ‘Bygningspuljen’, was launched by the Energy Agency in 2020.

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