Interest rate spike to affect thousands of Danish homeowners from the New Year

Hundreds of thousands of homeowners with CITA loans will have to pay a higher interest rate from the New Year. For most, the increase will be around 2.4 percentage points.

Starting from the New Year, many homeowners with so-called CITA loans will see a notable increase in their interest rates. Photo by Bruce Mars / Unsplash

Realkredit Danmark and the Danish bank Arbejdernes Landsbank announced the news on Tuesday after a new interest rate was set for the loans of around 200,000 homeowners.

In the so-called CITA loans, the interest rate is adjusted every six months according to what is called the CITA interest rate. The new interest rates come into force on January 1st, 2023.

FlexKort loans at Realkredit Danmark and F card loans at Totalkredit both fall under the said category.

Historically high interest rate level

According to Arbejdernes Landsbank, the new interest rates from the New Year will be an average of 2.9 percent. Before the New Year, it was 0.5 percent.

The lowest interest rate from the turn of the year will be 2.74 percent, while the highest interest rate will amount to 3.16 percent.

The interest on the loans will thus end up at the highest level since they were introduced in 2013, according to the chief economist at Arbejdernes Landsbank Jeppe Juul Borre.

At Realkredit Danmark, approximately three out of four borrowers will end up with an interest rate of just under 3 percent.

There, it has been calculated that the new interest rate will total between 2 and 3 billion kroner in interest payments for Danish homeowners next year.

“It is something that the individual borrower can naturally feel at a time when there is already pressure on the household budget from high inflation.

“Ultimately, this will also hurt activity in the Danish economy,” chief economist at Realkredit Danmark Christian Hilligsøe Heinig said, according to DR.

The fight against inflation

The rise in interest rates is due to the central bank raising interest rates in an attempt to bring down inflation.

The rising interest rate is supposed to lead demand to fall.

“This is a sign that when we see monetary policy tightening, it is something that affects companies and households very directly,” chief analyst Sune Malthe-Thagaard at Totalkredit said, according to Ritzau.

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Number of homes for sale in Denmark up 30 percent in 2022

After a period with low numbers of homes for sale, 2022 offered a lot more to choose from for buyers in Denmark.

Number of homes for sale in Denmark up 30 percent in 2022

New data from banking organisation Finans Danmark show that the number of houses for sale across the country is around 31 percent higher than it was a year ago.

This represents the largest influx of homes onto the market for 16 years, economist Brian Friis Helmer of Arbejdernes Landsbank told news wire Ritzau via written comment.

“The many extra ‘for sale’ signs come as a result of interest in buying houses drying out notably during the course of the year, as the housing market began to experience a headwind,” he said.

Higher interest rates in particular have dealt a blow to the market, he said.

Around 36,000 detached houses, terraced houses and apartments were for sale at the end of 2022, according to Finans Danmark.

The number of homes on the market is now at its highest for two years, Helmer said.

“But that comes from a point where it was at its lowest since 2006,” he also noted.

The price of a new home or flat has meanwhile fallen for the fourth consecutive month.

Copenhagen and its surroundings in particular have seen a sharp jump — the number of owner-occupied flats on the market has leapt nearly 70 percent in the last year.

But it’s not all roses for the would-be home buyer in Denmark. Higher interest rates make it more expensive to finance home loans, Helmer noted. 

“There are handles at both ends of the rope and the overall package for home buyers is therefore not better measured over all parameters,” he wrote.