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Danish central bank warns against less security on covered bonds
March 24, 2017 / 10:45 AM / 9 months ago

Danish central bank warns against less security on covered bonds

COPENHAGEN, March 24 (Reuters) - New mortgage legislation proposed by the Danish government is a step in the wrong direction as it makes lending more risky for banks and would erode the security of Denmark’s crucial covered bonds market, the central bank said in a statement.

The right-wing minority coalition’s bill would raise the allowed mortgage loan-to-value for holiday cottages to 75 percent of the price from 60 percent, making it easier to buy or sell a summer home.

But the 2.8 trillion Danish crowns ($407 billion) covered bond market is also key to funding regular homes, and should not be burdened with the risk of highly leveraged cottages where prices can also be more volatile, the central bank argued.

Denmark’s minister of financial affairs, Kristian Jensen, told Reuters he rejected the criticism, arguing that the price of holiday homes has been more or less unchanged since 2012.

“I see no risk for developing a price bubble in the Danish economy, and I do not share the central bank’s mistrust in parliament’s willingness to react in time against overheating of the economy, should we see negative consequences,” he said.

Top Danish banks and mortgage lenders include Danske Bank , Nordea, Jyske Bank and Nykredit.

$1 = 6.8844 Danish crowns Reporting by Erik Matzen, editing by Terje Solsvik

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