In light of the report, a joint Danish financial sector, consisting of the Association of Danish Mortgage Banks, the Danish Mortgage Banks' Federation and the Danish Bankers Association, states:
This is a well-researched report with several good points, which once again highlight why the Danish mortgage system is worth fighting for. The report shows that the Danish mortgage model is very transparent with low prices and favourable conditions for borrowers, in terms of ongoing credit costs and advantageous repayment options.
As a sector, we have come up with specific recommendations, which serve to further strengthen consumer protection. For example, better communication about reasons for increases in fees and charges, better options for switching financial institution, an extended notice period for price increases and in the future, institutions will not be able to demand a discharge fee, if a homeowner wishes to settle their loan in the notice period after a price increase.
The Danish financial sector generally supports all of the recommendations in the report that can increase mobility, competition and flexibility in the mortgage system. The report concerns a marked tightening of rules, which will strengthen consumer protection in the Danish mortgage system.
There is only one issue in the report’s recommendations that the sector cannot support. It concerns the proposal to remove companies’ option of covering the costs of settling loans in the notice period in the form of business expenses and extra brokerage fees.
Analyses by the committee of experts have not uncovered circumstances, which can justify such a principally extensive step. It is an unnecessary interference in private companies’ pricing policy and price formation in a free, competitive market. Rates of commission and extra brokerage fees upon loan settlement reflect costs connected with buying bonds, where borrowers can choose to buy bonds on a free market.
Increasing capital requirements
The report establishes that increasing capital requirements involves increasing prices on mortgage loans. The report also confirms that it is essential that mortgage institutions have the opportunity to adapt prices. This is vital, if we are to preserve the robust mortgage system in Denmark, which is also one of the cheapest forms of housing financing in the world.
The report also concludes that the impending capital requirements, the so-called Basel IV requirements, can prove to be particularly severe. Earlier in the year, the joint financial sector calculated that the level was around DKK 130 billion, if the proposal was passed as it stands today. See our analysis here.