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The Economist has taken a whack at the indebtedness of Danish homeowners, suggesting fragility in Denmark to interest rate rises. In response I've sent the following letter to the editor:
Re: Danish
Mortgages - Something Rotten
Sir,
Danish mortgage bonds have outperformed US Treasuries and all
other government debt since the start of the financial crisis in
2008. Rather than being backed by the theoretical capacity of
governments to raise taxes on struggling economies, Danish
mortgage bonds are backed by real properties with sensible
valuations, 20 per cent down payments by borrowers, and a system
of transparent market finance that has not experienced a bond
default in over 200 years.
The level of Danish private mortgage debt may be high, but Danish
borrowers are being urged to refinance at low fixed rates. Danish
banks are doing the urging because they can finance mortgage loans
in the liquid bond market. Even if a property bubble bursts,
Danish borrowers who cannot meet loan payment obligations will
typically sell at a profit rather than default. When a much
larger bubble burst in the 1990s borrowers with 3 months arrears
peaked at less than 2 per cent.
Kathleen Tyson Quah
Granularity Ltd
London
