National Bank of Denmark warns against easing housing lending rules as house price risks intensify

The National Bank of Denmark has published its biannual Financial Stability analysis, concluding that Denmark’s risk outlook has worsened as sharply rising house prices and higher geopolitical and energy price uncertainty increase vulnerabilities. Warning signs in the housing market are more pronounced, particularly in Copenhagen, with indications that price increases are spreading to surrounding areas. Although homebuyers appear resilient overall, the central bank warned that existing lending rules should not be eased. The analysis notes that the use of mortgage-like bank loans has increased, reflecting broader interest-rate developments and stronger competition among banks, but these loans still make up a limited share of total housing lending. The central bank found no indication of materially different credit quality from variable-rate mortgage loans and does not view the current trend as a threat to financial stability, though it will continue to monitor developments. It also warned that the war in the Middle East, higher energy prices and broader geopolitical uncertainty could trigger sharp market price falls that spill over into Denmark’s financial sector. Banks’ profits remain high and provide a buffer against losses, and stress tests indicate the sector as a whole can withstand a severe recession scenario, although corporate borrowers could be hit in a scenario of significantly higher energy prices and rising interest rates.