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New rules force mortgage pay-offs

Updated tisdag 11 november 2014 kl 19.03
Published tisdag 11 november 2014 kl 14.43
In Stockholm, Gothenburg and Malmö, mortgages are on average four times bigger than the household income. Photo: Hasse Holmberg/TT
In Stockholm, Gothenburg and Malmö, mortgages are on average four times bigger than the household income. Photo: Hasse Holmberg/TT

The Swedish Finance Inspectorate wants to force new mortgage borrowers to pay off part of the loan, until the mortgage makes up only half of the value of the house.

Mortgages on over 70 percent of the house's value will need to be paid off by 2 per cent per year, and then by 1 per cent per year until the target is reached. This would mean 1700 kr a month on top of the interest payments for a loan of one million kroner.

Four out of ten Swedish mortgage borrowers are currently not paying off their loans at all, they only pay the interest on their loans. But requiring more payments on home loans could triggers Swedes to spend less and further drive up deflation.

"These measures risk driving up household saving levels even further which could hit consumption and, in that way, growth," analyst Andreas Wallström at the Swedish bank Nordea told Reuters news agency.

According to the Bank of Sweden, people living in the three biggest cities have a mortgage four times the size of their disposable income, while the rest of the country it is more like three times as big.

Swedish central bank chairman Stefan Ingves told Swedish Radio he does not think the proposal will have an especially large effect and that household debt will continue to increase.

"We think that this is a problem that has already reached such a level that we are doubtful that this measure is enough," he said.

In a statement, the central bank said Swedish household debt is still "at unsustainable levels and needs to be slowed down" before it harms economic development and financial stability.

Our journalism is based on credibility and impartiality. Swedish Radio is independent and not affiliated to any political, religious, financial, public or private interests.
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