In June 2021 the Council issued a recommendation on limiting the access to interest-only loans for highly indebted borrowers. With the measure, Danish homeowners will not be able to take out new interest only mortgage loans or mortgage-like bank loans if the loan-to-value (LTV) ratio of their home exceeds 60 per cent. The primary objective of the initiative is to make homeowners more resilient, thereby also increasing the balance sheet resilience of banks and mortgage credit institutions.
The Government has decided not to follow the Council's recommendation for now, but will increase monitoring of the residential real estate market, including use of interest only loans.
The Council finds, that the Government’s decision implies that systemic risks related to interest only loans among highly indebted households remain unaddressed. Danish homeowners will continue to have access to interest only mortgage loans up to the maximum loan-to-value threshold. In combination with the very low interest rates, interest only loans encourage homeowners to incur disproportionately heavy debt burdens.