Danish mortgage banks are subject to tight legislation and are only allowed to grant mortgage loans that are funded by covered bonds. In addition, Danish covered bonds are subject to the EU covered bond framework.
In Denmark, mortgage lending and covered bond issuance are governed by the Danish Mortgage-Credit Loans and Mortgage-Credit Bonds etc. Act and the Danish Financial Business Act as well as a number of executive orders on eg ALM and property valuation.
These set out the frameworks governing the lending and funding of Danish mortgage banks.
The main purpose of the legislation is to ensure a high degree of security for Danish covered bond investors.
The legal and structural frameworks applying to Danish mortgage banks have in many ways been the pillars of the efficient and successful Danish mortgage system and are probably the most important reason for its long unblemished history, which dates back to 1850.
| Property Type | Legal maximum LTV | Maximum loan term |
|---|---|---|
| Owner-occupied dwellings | 80% | 30 years |
| Agricultural properties | 70% | 30 years |
| Subsidised housing | 80% | 40 years |
| Private rental housing | 80% | 30 years |
| Office and retail | 60% | 30 years |
| Trade and industry | 60% | 30 years |
| Cultural-purpose properties | 80% | 30 years |
| Holiday dwellings | 75% | 30 years |
| Undeveloped land | 40% | 30 years |
1 Nykredit's credit policy can be more restrictive