High interest rates keep buyers out of Danish property market
The high interest rates on mortgages have left many prospective home buyers in Denmark in a difficult position.
In the second quarter of 2023, only 9,718 loan offers for home purchases were extended to Danish consumers by banks.
This marks the lowest level of mortgage offers for this period since 2017, according to data released by the banks' interest organisation, Finans Danmark, on Friday.
This significant decline, with 38 percent fewer loan offers compared to the second quarter of 2022, can – at least in part – be attributed to the prevailing interest rates increases that have affected the conditions in the housing market.
Consequently, many first-time buyers have been put in a difficult position, as they lack the financial means to enter the market.
The effect of high interest rates
The low interest in getting mortgage offers among Danish consumers is mainly due to the high level of interest, according to Sebastian Kaldahl, a housing economist at the employers' interest organisation Confederation of Danish Industry (Dansk Industri).
"This must be seen in the light of the fact that the high interest rates have changed the conditions in the housing market. It keeps potential home buyers away, as they do not have the financial muscle to buy," he said, to Danish newswire Ritzau.
Since the summer of 2022, Denmark's central bank (Danmarks Nationalbank) has raised the key interest rate from -0.60 percent to today's 3.10 percent.
This has also affected interest and activity in the Danish construction industry.
In the second quarter of the year, only 692 loan offers were extended for new housing construction projects. This is the lowest figure across all quarters since 2017, Finans Danmark noted, as reported by news wire Ritzau.
Geographical differences
However, the situation in the market is not as clear-cut as it may seem at first – there are notable differences among Denmark's regions.
In the more expensive parts of the capital area, housing prices – and demand – have already started to pick up.
"In Copenhagen, we've seen a couple of months of rising apartment prices. That came as a bit of a surprise, but we think that what is going on is connected to the tax reform - we see sales are up by a lot this year...," Mira Lie Nielsen, the chief analyst at the financial service provider Nykredit, told The Local earlier in July.
As Lie Nielsen explained, this spike in demand in the Copenhagen area is most likely to be of a temporary nature, as people are trying to take advantage of low tax opportunities before the new property tax rules kick in from 2024.
EXPLAINED: Denmark's new property tax rules from 2024
"Next year, the taxes will rise significantly, so what we see now is a spike in temporary demand and interest in buying property in Copenhagen," Nykredit's chief analyst said at the time.
However, in the areas where the housing market is cheaper, especially west of the Great Belt strait, the decrease in both prices and demand is expected to hold throughout the year.
While areas outside of the capital haven't exactly seen the resurgence in prices registered in Copenhagen, the new mortgage statistics point to the conclusion that the increased cost of taking out a mortgage amid soaring interest rates has cooled down interest among prospective buyers – despite some experts being optimistic due to the recent wage increases in the country.
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In the second quarter of 2023, only 9,718 loan offers for home purchases were extended to Danish consumers by banks.
This marks the lowest level of mortgage offers for this period since 2017, according to data released by the banks' interest organisation, Finans Danmark, on Friday.
This significant decline, with 38 percent fewer loan offers compared to the second quarter of 2022, can – at least in part – be attributed to the prevailing interest rates increases that have affected the conditions in the housing market.
Consequently, many first-time buyers have been put in a difficult position, as they lack the financial means to enter the market.
The effect of high interest rates
The low interest in getting mortgage offers among Danish consumers is mainly due to the high level of interest, according to Sebastian Kaldahl, a housing economist at the employers' interest organisation Confederation of Danish Industry (Dansk Industri).
"This must be seen in the light of the fact that the high interest rates have changed the conditions in the housing market. It keeps potential home buyers away, as they do not have the financial muscle to buy," he said, to Danish newswire Ritzau.
Since the summer of 2022, Denmark's central bank (Danmarks Nationalbank) has raised the key interest rate from -0.60 percent to today's 3.10 percent.
This has also affected interest and activity in the Danish construction industry.
In the second quarter of the year, only 692 loan offers were extended for new housing construction projects. This is the lowest figure across all quarters since 2017, Finans Danmark noted, as reported by news wire Ritzau.
Geographical differences
However, the situation in the market is not as clear-cut as it may seem at first – there are notable differences among Denmark's regions.
In the more expensive parts of the capital area, housing prices – and demand – have already started to pick up.
"In Copenhagen, we've seen a couple of months of rising apartment prices. That came as a bit of a surprise, but we think that what is going on is connected to the tax reform - we see sales are up by a lot this year...," Mira Lie Nielsen, the chief analyst at the financial service provider Nykredit, told The Local earlier in July.
As Lie Nielsen explained, this spike in demand in the Copenhagen area is most likely to be of a temporary nature, as people are trying to take advantage of low tax opportunities before the new property tax rules kick in from 2024.
EXPLAINED: Denmark's new property tax rules from 2024
"Next year, the taxes will rise significantly, so what we see now is a spike in temporary demand and interest in buying property in Copenhagen," Nykredit's chief analyst said at the time.
However, in the areas where the housing market is cheaper, especially west of the Great Belt strait, the decrease in both prices and demand is expected to hold throughout the year.
While areas outside of the capital haven't exactly seen the resurgence in prices registered in Copenhagen, the new mortgage statistics point to the conclusion that the increased cost of taking out a mortgage amid soaring interest rates has cooled down interest among prospective buyers – despite some experts being optimistic due to the recent wage increases in the country.
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