Statistical news focuses on the latest figures and trends in Danmarks Nationalbank’s statistics. Statistical news is targeted at people who want quick insight into current financial data.
Increased bank debt for house purchase
Homeowners' bank debt secured by real estate has grown significantly in recent years. Although the growth has been slowing down in 2023, the bank debt for house purchase has increased by 4.2 per cent in the past year. Since the beginning of 2022, it has increased overall by about 10 per cent, reaching 292 billion DKK in October 2023. The growth is particularly driven by conversions from mortgage loans to bank debt. In the same period the difference between the interest rates on a variable-rate mortgage loan and a bank loan for house purchase are reduced since market interest rates rose significantly in 2022.
The bank debt for house purchase has increased by 4.2 per cent in the past year
Note:
The figure displays year-over-year growth in percentage terms for Danish households' (sector 1400) bank debt for house purchase. Find chart data here.
The shift from mortgage loans to bank loans
Homeowners' bank debt for house purchase constitutes approximately 63 per cent of the total bank debt of Danes by the end of October 2023. Bank debt for house purchase is often used as supplementary financing alongside a mortgage loan for the final part of financing, up to 95 per cent of the property's value. However, the recent growth in lending for house purchase has been primarily driven by conversions from mortgage loans to bank loans, commonly referred to as priority loans, where a maximum of 80 per cent of the property's value can be mortgaged.
Between the beginning of 2022 and June 2023, approximately 25 billion DKK of mortgage debt has been converted to bank debt for house purchase. Bank debt secured by the property can be an alternative to mortgage loans for many homeowners with a fixed-rate loan, especially those who, after a period of sharply rising interest rates, wish to realize their capital gains and perhaps anticipate that the interest rates on fixed-rate mortgage loans will decrease again within a shorter period. Bank debt, often with a variable interest rate, can be repaid at the value of the remaining debt, whereas repayment of mortgage loans is associated with price risk.
Smaller interest rate gap between bank and mortgage lending
Since market interest rates began to rise significantly in 2022, the difference between the interest rate on a variable-rate mortgage loan and bank debt for house purchase has decreased. On new loans disbursed in January 2022, the average interest rate at banks was 1.9 percentage points higher than the interest rate (including fees) on new variable-rate mortgage loans with annual interest adjustments. This interest rate difference has been reduced to approximately 0.4 percentage points in October 2023, where the average interest rate on new bank debt for house purchase was 5.47 per cent compared to 5.08 per cent on new mortgage loans. The interest rate on homeowners' bank debt may vary based on their financial situation, whereas the interest rate and fee on mortgage debt reflect market rates as well as homeowners' choice of loan type and loan-to-value ratio.