'Mortgages Too High' - Ingves
The Swedish Financial Supervisory Authority has suggested that banks overhaul their loans to private house buyers.
According to the authority, many Swedes have too high mortgages compared with the actual value of their real estates. In order to avoid a further swelling of the market, there should be legal limits to mortgages, the authority says.
The Swedish Financial Supervisory Authority says the risk for a complete collapse of the Swedish financial system is rather low, but the situation for private mortgages is somewhat worrying.
The authority comes to the conclusion that the market forces are currently working well in Sweden. Banks have the necessary oversight over their businesses and transactions, while private customers would most likely be able to cope with drastically increased interest rates. The Swedish central bank's key interest rate of 0.25 percent has not been changed since the last summer.
But with the inflation rate and especially housing prices going up faster than previously expected, many believe that interest rates will rise again before the next summer in order to avoid an overheating of the domestic economy.
At the same time, the Financial Supervisory Authority is expressing concern over the extent of many Swedes' mortgage loans. Even a rather small decrease in real estate prices, the authority warns, could lead to the uncomfortable situation where many households would find themselves paying back mortgages which are larger than the actual value of their homes.
According to earlier calculations, most Swedish homeowners have loaned far more than half of their property's value. And before the recession, back in 2008 and 2009, some banks would even encourage their customers to loan up to 100 percent. If housing prices were to fall, this could lead to a significant crisis for many debtors.
Speaking to the news agency TT, Stefan Ingves, head of the Swedish Central Bank, calls on the financial institutions and politicians to find ways of controlling the lending system more efficiently. Ingves also points out that legislators should consider legal limits to mortgages. "We should take these thoughts into consideration as long as the Swedish housing market is doing well. But Swedes have had a tradition of loaning too much in the past," says Ingves. "This cannot go on forever."