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COPENHAGEN, March 31 (Reuters) - Denmark should tighten mortgage regulations for some of its most highly indebted households to help protect financial stability, the country's powerful Systemic Risk Council said in a statement.
Specifically, the government should prevent most borrowers in Copenhagen and Aarhus, the top two cities, from taking on interest-only or variable-interest loans if their debts exceed 400 percent of pretax income, the advisory body added.
Only about 15 percent of loans granted by mortgage institutes in the two regions should be exempt from the restrictions, it said.
The risk panel, which includes the Danish central bank governor and the head of the Financial Supervisory Authority as well as other experts, was established in 2013 in response to the 2008 financial crisis.
Danish housing prices fell sharply in the wake of the crisis, but key urban areas have since seen a booming property market accompanied by rising household debt.
The government has now three month's time to adopt the request from the council. If refused the government needs to publish an account, where it explains and argues its reasons for not following the request.
Denmark's covered bond market amounts to about 2.8 trillion Danish crowns ($402 billion). ($1 = 6.9596 Danish crowns) (Reporting by Erik Matzen, editing by Terje Solsvik)