Denmark: World’s most indebted households turning down new home credit

Danish households, the world’s most indebted, are refusing to take on more credit.

They are still repaying the bill for the last upturn, according to Danske Bank, Denmark’s biggest lender.

Reducing debt mountains might look like sound housekeeping. But weak exports mean Denmark has to rely on consumption to fuel growth, Danske Bank chief economist, Las Olsen, said.

Normally, Danes would react to the improvement in economic conditions by “going out and making investments, buying houses, cars, and kitchens, spending borrowed money to push consumption much higher,” Olsen said.

“That’s not happening, because the debt load is already high.”

In effect, “the bill for the previous upswing hasn’t been paid yet”, he said.

Although Danish households remain the most indebted in the developed world, debt ratios are slowly coming down.

According to the Organisation for Economic Co-Operation and Development, Denmark’s was over 313% of disposable income at the end of 2014, compared to a high of 339% in 2008, shortly before property prices bottomed.

Property prices have since risen by 10%, while apartment prices have gained 46%.

Despite negative rates, the Danes are now much more reluctant to borrow than a decade ago.

Bloomberg