Country Profile

Source: Chris Ratcliffe/Bloomberg, Nyhavn in Copenhagen, 2011

Denmark, with a population of 5.5 million [1], is 87.2% urban. [2] Its owner occupation rate has remained stable over time, at a rate of just above 50%. The total dwelling stock in Denmark rose by 2.1% from the beginning of 2007 to the beginning of 2008, compared to a 0.6% increase in the number of households. [3] An increasing part of Denmark’s population prefers to live in urban areas. The heightened demand for urban housing has caused a boom in new residential construction to the degree that increased supply of owner-occupied dwellings in big cities has over-shot demand. As a result, prices on owner-occupied dwellings in big cities, which saw the largest price increases up to 2007, are now falling at a more rapid pace compared to less populated areas in the country. [4]

The Danish mortgage system is unique, as it is based on a “balance principle” which means that there is a direct match between the loan which a homeowner raises with the mortgage bank and the bond which a mortgage bank issues to fund the loan. Danish mortgage bonds have a high level of security, leading to low mortgage rates. The Danish system has proven to be a reliable supplier of mortgages – also in times of crisis. As financial systems elsewhere in the world have crashed, the Danish model remained robust, because it maintained its conventional low risk underwriting standards. [5]

In mid- 2009 mortgage loans totaled DKK 2,300bn or USD 429bn. [6] Denmark’s outstanding mortgage debt relative to GDP is 103.8%, amongst the highest in the world. [7] Its mortgage bond market is more than four times larger than its government bond market - and mortgage bank lending exceeds commercial bank lending. Moreover, Denmark has the largest issuance of covered bonds against mortgages on real property in Europe. [8]

In July of 2007, new Danish covered bond legislation came into effect and in many ways changed the conditions for financing real property. The legislation enabled a breakaway from the traditional Danish mortgage model based on the principle of matching loans and bonds. The purpose of the covered bond legislation was to implement a new set of rules from the European Union – the Capital Requirements Directive – into Danish law. [9] Covered bonds – or SDOs (særligt dækkede obligationer) – are bonds which meet specific requirements. With the introduction of the new covered bonds, Danish mortgage banks may today choose from three types of bonds to fund their loans: the traditional mortgage bond (RO), the covered mortgage bond (SDRO), and the covered bond (SDO). [10]  

Mortgage banks offer three main types of standardized mortgage loans: Fixed-rate loans, adjustable-rate mortgages, and floating-rate loans (with or without interest rate caps). These may all be combined with interest-only periods. Because Danish mortgage loans are not customized, they offer economies of scale and keep interest rates down. [11]    

[1] The World Bank. World Development Indicators Database. Web. 14 Feb. 2011.

[2] UN-Habitat. Urban Indicators Database. Web. 14 Feb. 2011.

[3] Statistics Denmark. StatBank Denmark: Population and Elections. Web. 15 Feb. 2011.

[4] European Mortgage Federation,“EMF Factsheet 2009: Denmark.” April 2009, p 2.

[5] Realkreditradet Online.“The Danish Mortgage Model.” Web. 14 Feb. 2011.

[6] The Association of Danish Mortgage Banks.“The Traditional Danish Mortgage Model.” 2010, p 11.

[7] European Mortgage Federation. "HYPOSTAT 2009: A Review of Europe’s Mortgage and Housing Markets." 2010, p. 70.

[8] Realkreditradet Online. “Facts About Danish Mortgage.” Web. 14 Feb. 2011.

[9] The Association of Danish Mortgage Banks. “The Traditional Danish Mortgage Model.” 2010, p 15.  

[10] The Association of Danish Mortgage Banks.“The Traditional Danish Mortgage Model.” 2010, p 16.

[11] The Association of Danish Mortgage Banks.“The Traditional Danish Mortgage Model.” 2010, p 11-12.