Denmark’s biggest mortgage bank is reminding homeowners that a seemingly unstoppable series of price gains can end, and even go into reverse.

Chief analyst at Nykredit, Mira Lie Nielsen, says Danish people need to put the possibility of house-price declines "on their radars" or risk going into "shell shock when it happens".

“Our expectation isn’t that home prices will fall in the near future, but it’s important to say, again and again, that especially apartment prices can also fall,” Nielsen said in an email.

After almost half a decade of negative interest rates, many homeowners in Denmark are being paid to borrow, excluding bank fees. Most analysts estimate Danish rates won’t go positive until 2018 at the earliest, threatening to create an atmosphere of complacency as borrowers take on bigger mortgages based on assumptions that low rates are here to stay.

Home prices rose by an annual 4.5 per cent across Denmark in July, according to Boligsiden.dk, a web portal that tracks the property market. Copenhagen apartment prices soared 9.4 per cent, underpinning the “continued need to be particularly aware” of the potential risks, Nielsen said.

“Prices for city dwellings are at a markedly higher level today and are in a range where few people who aren’t already benefiting from the price gains can join in,” Nielsen said. “So the price level is playing its own damping role on the market, because incomes haven’t quite been able to keep up. This is already visible in Copenhagen.”

Apartment prices in Denmark are about 5 per cent above their 2006 peak, according to the latest data from Statistics Denmark. Back then, the country’s bubble burst and apartment prices slumped about 30 per cent through to 2009.

Denmark has already introduced rules designed to cool the housing market, such as requiring a 5 per cent down payment and applying stricter tests to ensure households can withstand sudden increases in interest rates. The government is also considering changing tax laws in a direction that may add to the burden of city apartment dwellers, according to the Borsen newspaper.

Nykredit is Denmark’s biggest mortgage lender, with just over 40 per cent of the market. Analysts working at the bank have repeatedly warned that there are signs of imbalance as negative interest rates distort prices.

In a note last month, Nykredit chief analyst Tore Stramer warned that “there is a danger that Danes go blind to the risk of rates ever rising again.” That means that especially in urban areas, the housing market may get “out of control.”

Denmark’s negative rates are a product of the central bank’s policy of defending the krone’s peg to the euro. Its main rate was minus 0.75 per cent for most of last year, though the bank raised it by 10 basis points in January in an effort to normalize policy. The central bank didn’t intervene in currency markets in July, signalling pressure on the peg is abating.