SHARE
COPY LINK
For members

PROPERTY

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'
Renovations like better insulation can improve the energy rating assigned to a house, benefitting potential sellers and buyers alike. File photo: Linda Kastrup/Ritzau Scanpix

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.

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.
For members

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.

SHOW COMMENTS