Danish homeowners with flexible rate mortgages could face raised costs

Interest rates on flexible rate mortgages are likely to increase from next year after auctions by real estate lender Totalkredit on Monday.

Danish homeowners with flexible rate mortgages could face raised costs
Interest rates are set to increase on many Danish variable rate mortgages from next year. File photo: Kasper Palsnov/Ritzau Scanpix

Totalkredit, a subsidiary company of bank Nykredit, is the largest provider of real estate loans for private homes.

Because of the way the Danish mortgage system is structured, mortgage sums are loaned primarily by banks which specialise in real estate loans know at realkreditinstitutioner. The remainder of the mortgage is lent by the customer’s bank, which approves the mortgage to the homeowner.

Totalkredit works with a number of major Danish banks including Arbejdernes Landsbank, Spar Nord and Sydbank.

The company auctioned flexible loans on Monday with resulting interest rates exceeding 3 percent on the F1, F3 and F5 loan types, news wire Ritzau reports.

That means the interest on these types of mortgages will be at their highest for several years.

“This round of interest revision auctions has ended with massive interest rate increase,” Arbejdernes Landsbank private economist Brian Friis Helmer Ritzau in a written comment.

“That is in stark contrast to the many years with auctions that finished with interest rates in the negative,” he said.

Helmer said that people with affected mortgages should look at their preliminary tax returns for 2023, which were published last week, in order to help reduce the impact of additional costs.

READ ALSO: Forskudsopgørelse: Why checking your preliminary Danish tax return matters

“Because if you choose to register, in advance, the higher costs due to interest, you will get a higher interest rate deduction [rentefradrag in Danish, ed.] with immediate effect,” he said.

“If you don’t do anything, that doesn’t mean you’ll be landed with more tax, but you’ll get the money back in spring 2024,” he noted.

Unlike mortgages with fixed rates, variable rate mortgages see their interest rates adjusted on a regular basis.

F3 loans, for example, are adjusted every three years, while F5 loans have adjustments every five years.

The interest rates are revised because the bonds [Danish: obligationer] on which the loans are secured expired and must be replaced. The interest rates for the new bonds are set at auctions.

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Danish government returns debt payments from 138,000 people 

Around 138,000 people in Denmark have been unable to repay debts to the Danish state in 2022 after money they paid was refunded.

Danish government returns debt payments from 138,000 people 

From January to October 2022, 138,000 people in Denmark trying to square their debts with the government were refused due to confusion about whether the Danish Debt Collection Agency (Gældsstyrelsen) actually has the right to receive it, newspaper Berlingske reports.

Having a debt to the Danish public sector on your books can have serious financial consequences, including jeopardizing your eligibility to secure a mortgage.

Data from the Debt Collection Agency indicate the number of debts considered “not ready for recovery” has increased by 1.5 million this year. Half of those debts are connected to the Danish Tax Authority (Skattestyrelsen). 

In total, the 138,000 people were refunded 121 million kroner, including 17 million kroner in unpaid interest. That works out at an average refund of 750 kroner per person.

Based on the scale of the problem, the government will have to consider cancelling some of the debts, Peter Bjerre Mortensen, professor of public administration at Aarhus University, tells Berlingske. 

“They need to swallow some very big camels and/or simplify some legislation or forgive some debts, because right now it seems that things are still going the wrong way with regard to collecting public debt,” Mortensen said. 

The issues with ‘unpayable’ debts first arose in 2015 when EFI, the IT system Skat used to collect debt, was shuttered, according to Berlingske.

Debts to the Danish state have been growing since then. The parliamentary ombudsman said earlier this week that he would try to find out why individuals have been unable to repay debts.

“The ombudsman has received complaints from several members of the public and there have been articles in the media about people who could not repay their debt to the state,” wrote the ombudsman, Niels Fenger.

Tax minister Jeppe Bruus has previously recognised the issue with the repayment system.

“This is a huge challenge and something that must be worked on and improved,” he told newspaper Jyllands-Posten in September.

READ MORE: ‘Topskat’: What is Denmark’s high income tax bracket?