Mortgages for students – read before you loan!

Skrevet af Jannick Friis ChristensenTranslated by Felix Kasperek - Foto: - 26. august 2013 - 16:250 kommentarer
The situation in the Copenhagen housing market is frustrating, but you have to think carefully before you take up loans for an apartment.

In Copenhagen, there’s only one student dorm room for every eight students. That has made buying a cohousing flat very attractive and an increasing number of banks offer cohousing flat loans for students. But the students should read the fine print before signing on the dotted line.

Record number of students – record lack of housing
Semester start 2013 looks to break all records. Over 88,000 new hopeful applicants have applied for their dream study program and, out of that number, more than 60,000 new students have been accepted into the country’s universities.

This year, the higher learning institutions accept a four percent increase compared to 2012 – also a record year. That has lead to record demand for the approximately 64,000 student housing options that exist for the 247,000 students across the country.

A report from the Ministry of Housing, Urban and Rural Affairs, regarding the number of youth housing options states that there’s a total of four students per youth accommodation.

However, in Copenhagen that number’s eight students per accommodation option. In fact, there’s only housing for 11,000 students, while the number of active students is approximately 80,000.

Expert: better to own than rent
The desperate situation in the Copenhagen housing market, especially for rentals, has led John Norden, partner in the comparison portal Mybanker to recommend that students own rather than rent.

That recommendation is becoming increasingly easy to follow, as several are starting to offer loans to cohousing flat loans for students who need a roof over their heads.

New calculations from Mybanker even show that there are thousands of kroner to be saved by paying off the cohousing loan with the low-interest SU loan (student support loan).

Cohousing flats are good investments
Student Hjalte Bach, enrolled in the MSc BA (Communication) this fall semester has already bought a flat. He’s lived five different places over the course of the three years his bachelor’s degree took and now wants a permanent base for his Master’s degree.

- I’ve always been lucky in finding a place to stay through somebody who knows somebody. But my impression is that it’s generally hard. It’s stressing enough in itself that you often only find temporary contracts, says Hjalte Bach and adds:

- And you have to pay a deposit every time and you rarely get it back. Losing that money isn’t exactly great.

As he puts it himself, by choosing to buy a cohousing flat rather renting, he’s chosen to put the money in his own pocket rather than throwing them out the window.

- It’s an investment, because I pay approx. the same amount as I did when I rented, Hjalte Bach reflects after having lived in his new apartment for a few months.

Be wary of the costs of loaning
Even though Hjalte Bach was very thorough in his research before buying, some of the costs took him by surprise.

- I expected certain fees for one thing or another, but they amount to around DKK 20,000 just to take up the loan. I hadn’t expected that, says Hjalte Bach, who thinks that the total costs are hard to get an overview of.

All in all, he claims to have been charged additional fees of DKK 17,200.

Compare loans using EAPR
According to consultant of Mybanker Martin Andersen fees are perfectly normal for cohousing flat loans. That’s why it’s not necessarily the bank with the lowest interest that has the cheapest loans.

Martin Andersen therefore encourages students who are considering buying a cohousing flat to consider the effective annual percentage rate (EAPR).

- When you’re trying to figure out how attractive a loan is, you should look at EAPR. It’s a concept that makes it possible to compare loans from different institutions in one number, Martin Andersen explains and elaborates:

- All costs of taking up the loan and for the duration of the loan are included in EAPR and interest, annuities etc.

The monthly payment is a good guideline
Alternatively, you can compare the loans using the monthly payments. Much like the EAPR, the monthly payment is a more useful tool than the interest rate.

- The monthly payment is a simple concept that expresses the monthly costs and includes interest and installments, says Martin Andersen.

The ranking of the banks on the comparison list of will be the same, regardless of whether you sort by EAPR or monthly payment.

Being master of your own domain is an advantage
In spite of the fees that surprised Hjalte Bach, he still prefers having a place he can call his own.

- I see it as a clear advantage that I can live in the same place over the course of the rest of my education and when I get my degree, says Hjalte Bach and adds:

- If you have a stabile income and you aren’t afraid to owe away money, I highly recommend buying a cohousing flat over renting.

Beware of loan intervals
Since Hjalte Bach, as most students, didn’t have money to use as down payment, his cohousing flat is mortgaged up to 100 percent of its value. That means a higher interest rate.

That’s why Martin Andersen of Mybanker advises potential buyers to pay extra attention to the banks’ loan intervals.

- Many of the banks operate with different interest rates, depending on how big a part of the flat’s value is mortgaged. Often you’ll see that the interest rates are cheapest at the first 0-80 percent and then higher in the top 20 percent, Martin Andersen explains.

If more than 80 percent of the flat is mortgaged, the interest rate to be paid will be a weighted average of the two interest rates. Martin Andersen explains.

He notes, however, that many banks use the same interest rate, regardless of the loan interval.