Biggest Banks in Denmark Face Law Curbing Mortgage Brokering

Denmark’s government plans to stop banks using their real estate units to channel business straight onto their balance sheets.

Instead, the government of Prime Minister Helle Thorning-Schmidt will require that realtors let clients find their own financing, according to a draft proposal published on the parliament’s website. Real estate brokers will also only be allowed to show a property’s selling price, and not the monthly mortgage payment, according to the draft.

The proposal, if approved by lawmakers, threatens to weaken the dominance of Denmark’s biggest banks Danske Bank A/S, Nykredit Realkredit A/S and the Danish unit of Nordea Bank AB. All three have their own real estate brokerages, which have so far pushed clients straight onto mortgages provided by their parent banks.

“The law will force competition into being on the selling price of a property rather than on who’s able to squeeze monthly costs the most,” Benny Engelbrecht, parliament’s business committee speaker for the ruling Social Democrats, said in a telephone interview. It will also “protect consumers and force them to get a clear view of their personal finances before buying.”

Business Minister Henrik Sass Larsen, who had been due to present the bill today, will now show it to lawmakers on March 18, according to the parliament’s website. New legislation must pass three votes in the chamber before being enacted.

Property Bubble

“It’s not going to hurt our business as we don’t expect it to prevent our real estate agents from just advising clients to call us,” Flemming Vesterbrandt, a director at Nykredit’s retail client unit, said in a phone interview. “The law will step up awareness of the role banks play in property trading.”

Denmark emerged as Scandinavia’s weakest economy after the nation’s housing boom turned to bust in 2008, sending property prices plunging about 20 percent through last year. The $340 billion economy contracted 0.5 percent in the fourth quarter from the third as consumers cut spending and businesses invested less.

The government’s proposal comes as Denmark’s $550 billion mortgage market, the world’s biggest per capita, struggles to adjust to flagging loan and refinancing demand as well as stricter regulatory requirements.

Loan Demand

Loan demand in Denmark, where households carry the world’s biggest debt loads, slowed last month. Danish consumers owe their creditors 321 percent of disposable incomes, a level that the Paris-based Organization for Economic Cooperation and Development said in November demands a policy response. Denmark’s government and central bank counter that consumer debt is offset by home equity and pension savings, leaving households with net assets.

Still, demand for credit is receding, according to figures provided by the Association of Danish Mortgage Banks. Lenders made 5,000 fewer loan offers in February than the monthly average last year, the Copenhagen-based industry group said yesterday.

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