Edge Denmark is severely affected by changed conditions in the mortgage loan sector, and the crisis is hit particularly hard in these areas. The companies are failing the principle of equal conditions for borrowers. Is it fair?
The conditions for raising mortgage loans have been changed since the start of the financial crisis in 2008. Most have probably experienced that it has become more expensive to borrow money from mortgage-loan companies. Despite the fact that interest rates have fallen and mortgage services in the mortgage sector have become cheaper, the administration contribution, start-up costs, price cutting and other costs have flowed up over the past five years.
This is due to increased requirements for equity. The mortgage sector must have more money in reserve than they should in the past in order for them to lend. That’s the main reason – they say themselves. There is probably something about that even though another equally important reason must be found in the fact that there is a general desire in the industry to make more money.
Limited loan options are uneven
The industry has also limited customers’ opportunities to borrow. Nykredit’s two-layer borrowing is a good example. But it is also harder to get loan approved than before. You just have to earn more today than before to get the same loan. It is probably also in order.
On the other hand, it is quite crazy when the same person cannot get the same loan for a home in Gedser as in Gentofte – despite the fact that the value of the property is set to the same by a local realtor. The only reason why the buyer cannot get a loan in the property is that the property is located in a peripheral area such as Lolland-Falster, South Funen or West Jutland.
The principle of equality
Here, the companies break one of the old principles for the mortgage loan sector. The principle has meant that so far you could borrow up to 80% of the value of your owner-occupied property, no matter where in Denmark it was. Provided, of course, that you could otherwise be loaned with loan.
This meant that you could borrow in the house in Gedser with the same interest rate as in the house in Gentofte, although the economic conditions in Denmark are not always the same in town and country. It is a principle of solidarity that ensures that city and country can develop at the same pace.
That principle disappears quietly now. The companies simply do not borrow money in certain areas. They have begun to distinguish between Gentofte and Gedser in a way that aggravates the crisis in the outskirts of Denmark. Houses cannot be mortgaged, which means they cannot be sold. This means that few people want to move to these areas and that the areas will find it very difficult to grow out of the crisis. And this is a problem for the whole of Denmark, something needs to be done about.
How do we ensure equal access to loans?
Perhaps the best thing would be for the principle to be guaranteed by law. Alternatively, the mortgage-loan sector may start issuing loans with different interest rates for properties on, for example, Falster and the Copenhagen area. Then it will at least be possible to get funding.
The latter will certainly be impossible to implement because mortgage bonds require very large volumes for the pricing to be effective. Lolland-Falster or the outskirts of Denmark is not large enough in itself to provide such bonds with satisfactory liquidity.
But the thought experiment shows that the mortgage-loan sector has taken a completely wrong course at the moment and that we risk losing some important values in the Danish mortgage-loan system.