COPENHAGEN, June 19 (Reuters) - Denmark on Monday urged banks to limit mortgage lending to households with big debts in areas with high house prices to help to protect financial stability.
People across Scandinavia have been taking increasing risks on housing as prices have soared over the last decade, fuelled by low interest rates and tax incentives.
In March, Denmark’s Systemic Risk Council called on the government to prevent most borrowers in Copenhagen and Aarhus, the country’s two main cities, from taking on interest-only or variable-interest loans if their debts exceeded 400 percent of pretax income.
Only about 15 percent of home loans granted by mortgage lenders should be exempt from these restrictions, business minister Brian Mikkelsen said in a statement on Monday, referring to recommendations made by the Systemic Risk Council, which was set up in 2013 in response to the 2008 financial crisis.
“Credit institutions should exercise particular caution in lending in growth areas,” Mikkelsen said.
Danish housing prices fell sharply in the wake of the crisis, but property prices in key urban areas have boomed since then alongside a surge in household debt. (Reporting by Jacob Gronholt-Pedersen. Editing by Jane Merriman)