Frontpage News 2015 Rural districts: n...

Rural districts: new proposal from the Danish Bankers Association

8 September 2015

​The Danish Bankers Association proposes a higher degree of flexibility in guidelines concerning customers’ disposable income in connection with housing finance, so that a family of two adults and two children, who have demonstrated that they can manage on less than DKK 13,500 per month, will be allowed to do so.

There are several structural issues for rural districts at the moment: the population is heading towards the larger cities, smaller urban communities are experiencing a loss of jobs and it is becoming harder to sell property. This now means that properties in some areas of Denmark are difficult to sell and in some cases, it can be difficult to obtain financing for house-hunting.

“Financial institutions would, of course, like to contribute to relieving the situation, but there aren’t any easy solutions,” says the Chief Executive Officer of the Danish Bankers Association, Ulrik Nødgaard, as he explains that financial institutions and mortgage banks have already granted loans of approx. DKK 1,000 billion to rural districts.  

“This is about us simultaneously finding solutions that can contribute to easing financing in rural areas and also ensuring that credit institutions do not compromise their credit ratings or expose themselves to large credit risks,” Nødgaard explains.
 
One option is to look at the disposable income that debtors must have for housing finance, according to the Danish Bank Association’s Chief Executive Officer.
 
The Danish FSA’s guidelines for account reports has some recommended directions about the disposable income that customers with mortgage loans must have in order to be categorized as customers with a normal “creditworthiness” – in other words, ordinary creditworthy customers. Although the guidelines are about reporting information to the Danish FSA, it has a rub-off effect on the assessment of customers in terms of lending.
 
For example, according to the guidelines, a family of two adults and two children must have a disposable income of DKK 13,500, regardless of whether the family’s financial history shows that their consumption is not at all of this size.
 
”We suggest relaxing limitations in relevant cases. We could, for example, look at whether a customer should be considered creditworthy, if the customer has shown over many years that they can make ends meet on a lower disposable income, without overdrafts, arrears, other debt incurrences, or incomes of an extraordinary character. It should also be a prerequisite that the customer has positive assets and the assessment must show that it is likely that the customer will be able to get by on a lower disposable income in the future,” Ulrik Nødgaard says and continues:
 
“We aren’t saying that this proposal will solve the entire problem, but it could be one of many tools that hopefully can contribute to relieving the situation.”
 
The Danish Bankers Association’s Chief Executive Officer emphasises that there is already a substantial and growing number of loans in Denmark’s rural areas.
 
”There is also a desire to increase loans amongst our members. However, there is, firstly, a low demand for loans and at the same time, it is important to maintain healthy credit policies with regard to financial stability,” Ulrik Nødgaard says.
 
The Danish Bankers Association has entered the proposal to the committee under the Ministry of Business and Growth, which will now begin investigating how economic growth and jobs can be created in rural districts. The committee is led by Professor Michael Møller.
 
(It was stated in a previous edition of this article that financial institutions had granted loans of DKK 700 billion. This has now been changed, as financial institutions and mortgage banks have already granted loans of approx. DKK 1,000 billion to rural districts.)
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