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Danish house prices reach highest ever level, beating 11-year record

House prices in Denmark have never been higher, with the cost of a buying home now above the previous record set in 2007.

Published: 18 March 2019 10:47 CET

Danish house prices reach highest ever level, beating 11-year record

File photo: Mathias Løvgreen/Ritzau Scanpix

Finance Denmark, an interest organisation for the banking and financial services industries, published the new figures which show house prices to have reached an all-time high.

House prices increased by 4.2 percent nationally in 2018, with the average price of a 140-square-metre-house reaching 1,923,000 kroner (257,000 euros).

The price represents the highest figure for the category since records began in 1992.

“The housing market is doing well, and houses are now being sold for the highest prices ever. Prices are increasing in most of the country and plenty of sales are being completed,” Nordea housing market economist Lise Nytoft Bergmann stated in a written comment.

“We expect this positive trend to continue and house prices to continue to go up in 2019 and 2020,” Bergmann added.

A steep regional variation can be seen in Denmark’s house prices, with the price of a 140-square-metre-house in Copenhagen over 5 million kroner, compared to 1.2 million kroner in western Jutland and 990,000 kroner on the Baltic Sea island of Bornholm.

But although the current prices are at a higher amount than anything previously recorded, actual value is 14 percent lower than in 2007, due to inflation.

The housing market is considered to have been overheated in 2007, the year prior to the global financial crisis. But Bergmann said she did not see the same economic warning signs in the current market.

Lower interest rates mean that mortgages are effectively cheaper than they were 12 years ago.

Additionally, Danes have, on average, better salaries than they did in 2007, improving their chances of being able to finance the purchase of a home.

READ ALSO: Increase in apartments for sale in Copenhagen: report

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Why buying property in Austria remains unaffordable for most

Many people living in Austria dream of one day owning a home, but despite recent drops in property prices and interest rates, this dream is still out of reach for many average earners.

In Austria, it is recommended to not spend more than 40 percent of a monthly income on debt repayment.

But new analysis by tariff comparison portal durchblicker.at reveals that even a double-income household would need to spend around 60 percent of their income to afford a 90m² new-build apartment in Vienna.

While the government has created initiatives to improve the affordability, with attractive housing packages, fee reductions and eliminations of certain fees, such as the “Grundbucheintragsgebühr” (land register entry fee) and “Pfandrechtseintragungsgebühr” (mortgage registration fee) for properties up to a certain value, their impact has been limited.

Furthermore, the governments initiatives often overlook the specific needs of lower-income households and may benefit those who are already financially stable, leaving the average earner still struggling to afford a home, according to Der Standard.

READ ALSO: ‘Haushaltsversicherung’ – How does Austria’s home insurance work?

High prices, rates and strict lending criteria

One of the biggest barriers to owning a home in Austria is simply the sky-high property prices. Over the years, property prices have increased, making it more difficult for people with an average income to afford a place of their own. Even with recent minor dips in prices, they still remain high.

Another factor making owning a home challenging is the increase in interest rates in recent years. As a result, both existing variable-rate loans and newly obtained fixed-rate loans have become more expensive. Analysts expect the European Central Bank to cut interest rates by around 0.5 percent in the near future, but according to durchblicker’s calculations, this would initially only create a little relief for loan takers, where instead of around 60 percent, 55 percent of monthly household net income would be needed for debt repayment.

Another issue preventing many from realising their dream to buy a home is the difficulty in obtaining a mortgage. Since July 2022, stricter rules have applied in Austria for the granting of property loans. Loan applicants must have a deposit worth at least 20 percent of the value of their property to be granted a loan, according to the financial online platform Finanz.at. This means that even applicants with higher incomes may struggle to get their dream financed.

Furthermore, many loan takers with variable-rate loans, especially those recently obtained, are facing significant challenges. The variable interest rates have increased significantly since the initiation of these loans, resulting in higher monthly repayments, reported Der Standard.

Few people can afford their own home in Austria, especially in Vienna. Photo by Christian Lendl on Unsplash

Experts suggests fixed rate loans and cooperative housing models

Andreas Ederer, Head of Banking at durchblicker.at, recommends loan takers with variable-rate loans to change to fixed-rate loans. He suggests that fixed-rate loans have become more attractive as they are currently cheaper than variable-rate loans, reported Kurier.

Unlike fixed-rate loans, which have a steady interest rate throughout the loan term, variable-rate loans can change over time in response to shifts in market conditions or the economy.

Experts also suggest alternative models for increasing affordability. One idea is to create more opportunities for cooperative ownership with mandatory purchase options. This could offer a more affordable option where costs such as maintenance and taxes are shared. According to Der Standard, cooperatives also often have access to loans with better terms.

READ NEXT: How can I move into affordable cooperative housing in Vienna?

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