New rules will force Swedes to pay off mortgages

1:24 min

Beginning on June 1st, new mortgage borrowers in Sweden will likely be forced to pay off part of the loan, as the government approved a new amortization regulation yesterday which is expected to find support in parliament.

The new rules will apply to loans for more than 50 percent of the value of the property, where the borrowers will have to amortize one percent per year. For those exceeding 70 percent, the requirement will be higher: two percent per year.

The Swedish Financial Inspectorate already tried to introduce similar measures in 2014, but had to back down on 2015 after courts ruled it had no legal grounds for changing the rules.

The debt of Swedish households grows around seven percent yearly and many experts have said Sweden could be creating the conditions for a debt crisis and housing bubble. The Central Bank, the Financial Inspectorate and the National Institute of Economic Research have warned of the risks of a bursting housing bubble for the Swedish economy.

However, Swedish banks have taken a head start and are already asking their clients to pay off their mortgages. In most cases, they are complying. More than 90 percent of borrowers at Sweden's largest banks, who have loans worth more than 70 percent of the property's value are already paying off part of their mortgages.

The government will have exemptions for borrowers with financial difficulties, including people out of work or on medical leave. There will also be an exception for new constructions, in order to promote more building.

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