Denmark should tighten equity requirement
Denmark should force home buyers to hold more equity than the current minimum level, which would in turn make them less vulnerable to swings in property values, the International Monetary Fund (IMF) said.
While Danes are currently allowed to borrow up to 95 % of the cost of buying a home, this loan-to-value ratio should be lowered to 90 % or less, the agency added.
“The present requirement of five percent (equity) is very low compared to other countries. Some countries demand a down payment of 15 or 20 percent,” David Hofman, the head of the IMF mission to Denmark, told Reuters.
An ongoing boom in housing prices in urban areas, combined with high household debt and the use of interest-only or variable-rate mortgages, is driving up debt, he added.
Denmark’s recent decision to raise the loan-to-value ceiling for vacation homes to 75 percent from 60 percent runs counter to the efforts to reduce housing risks, the IMF said.