House prices, global tensions elevate financial stability risks

Warning signs in the Danish housing market have become more pronounced, particularly with house prices continuing to rise markedly in Copenhagen.

Indications suggest these price increases are spreading to surrounding areas, intensifying the risk outlook.

Danmarks Nationalbank's biannual Financial Stability Analysis concludes that while homebuyers appear resilient, there are clearer signs of risk build-up.

Governor Ulrik Nødgaard stated that when prices rise sharply, driven by expectations, vulnerability to a later fall increases.

He stressed the crucial importance of maintaining lending rules, which have contributed to homeowners' resilience, to prevent any easing that could exacerbate risks.

This vigilance is essential to mitigate the heightened susceptibility of the market to future corrections.

Danmarks Nationalbank examined the rising use of mortgage-like bank loans, a trend linked to broader interest-rate developments and increased competition.

While these loans are growing, they still account for a limited share of total housing lending.

Data indicates no major differences in credit quality between mortgage-like bank loans and variable-rate mortgage loans.

The Nationalbank does not consider this an immediate threat to financial stability but will continue close monitoring due to housing finance's importance.

Banks' profits remain high, providing a buffer for losses, and stress tests confirm the sector's resilience to a severe recession.

However, corporate customers could be affected in a risk scenario with significantly higher energy prices and rising interest rates.