Interest rates encourage Danes to restructure mortgages

Large numbers of homeowners in Denmark are aiming to cash in by changing the structure of mortgages, as interest rate trends provide the potential for savings.

Interest rates encourage Danes to restructure mortgages
Home owners can sometimes benefit from restructuring their mortgages. Photo: Linda Kastrup/Ritzau Scanpix

Data from financial interest organisation Finans Danmark show that 90 percent of the 23,481 mortgage offers that were made in Denmark in October were related to restructuring of existing loans.

Many homeowners in Denmark are currently able to exploit interest rate trends by clearing their mortgages at lower repayment interest rate than the one they originally took out.

This allows the homeowners to cut part of their outstanding debt by taking out a new mortgage with higher or variable interest, replacing the previous mortgage.

At the beginning of 2022, around 400,000 homeowners had fixed-rate mortgages with interest rates of 2 percent or less and outstanding payments over 1 million kroner.

That number has fallen to 287,000 because of the number of people who have undertaken mortgage restructuring, according to the report.

READ ALSO: Should you buy now if you’re looking for a property in Denmark?

“Because of current interest rates, many homeowners with fixed-rate mortgages can reduce part of their balance by restructuring their loan,” Finans Danmark CEO Ane Arnth Jensen said in a statement on the organisation’s website.

“High interest levels mean that the rate on the underlying obligations falls and that the loans can thereby be cleared at a lower rate than they were taken out at. That can be interesting for many Danish homeowners and we are therefore seeing a high number of offers for loan restructuring or supplementary loans,” he said.

Restructuring loans may not be advantageous for everyone and individual assessments must always be made, Finans Danmark writes.

“Homeowners can switch their current fixed rate loan for a new fixed rate loan with a higher interest rate, or they can switch to a variable rate loan. The variable rate will be lower than the fixed rate here and now but the variable rate can be higher than the fixed rate loan you are coming from,” Jensen said.

“Additionally, there is a risk that the interest can increase and maybe be higher than the fixed rate loan. A higher interest will give higher repayments on the loan and that can hollow out the gains made from the restructuring,” he said.

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Home sales in Denmark sink to lowest level since 2013

The number of home sales in Denmark fell over the last three months to the lowest level since the start of 2013, when the country was still emerging from a protracted housing slump.

Home sales in Denmark sink to lowest level since 2013

Only 9,931 homes were sold in the last three months of 2022, according to the latest figures from the trade body Finance Denmark, the lowest number for 39 three-month periods. At the same time prices have fallen back to the levels they were at at the end of 2020. 

“The second half of the year in particular showed a marked decline in housing transactions,” Brian Friis Helmer, economist at Arbejdernes Landsbank. “The headwind comes from higher interest rates, higher energy bills and financial uncertainty.” 

Prices of apartments fell by 7.2 percent last three months of the year compared to the same period in 2021, while prices for detached houses fell by 6.3 percent. 

Bo Sandberg, housing economist at the Confederation of Danish Industry, said that this made Denmark one of the European countries which had seen the biggest falls. 

“We are pretty much only exceeded by Sweden,” he wrote in a commentary. “The peak of the price increases, which occurred during an exceptionally favourable and historically unique period in the housing market, has now been shaved off, and prices are back at the 2020 level.”

A survey of Danish home owners carried out by Finance Denmark in February 2023 found that a slim majority of 55 per cent expected prices to remain stable over the coming 12 months, with only 20 percent expected prices to drop more than 1 percent. 

This compared to 30 percent who expected a drop of more than 1 percent a year ago. 

Only 2.9 percent of home owners expected a fall of more than 5 percent, while 13 percent expected prices to rise over the next year, with 4.5 percent expecting a rise of more than 5 percent. 

“Energy prices have fallen significantly in recent months, and consumer prices are not rising as quickly as in the past. At the same time, more people have probably got used to the higher level of interest rates,” Ane Arnth Jensen, deputy managing director of Finance Denmark, said in a press statement.

“This may be part of the explanation for the fact that the Danes expect the future to be a little brighter, and many expect a calmer housing market in the coming year. But whether that will happen, only time will tell.”