Mortgage ceiling has had effect – Swedish FSA

Tuesday, 13 March 2012
Mortgage ceiling which the Swedish government implemented to try and dampen the extraordinary rise in the Swedish house prices as well as to combat the astronomical rise of Swedish household debt has been determined to have worked. But work in what context remains questionable.

According to Swedish financial services authority, (Finansinspektionen (FI)) the proportion of households with new loans fell as banks where to not require to loan out more 85 percent of the homes market value to the house buyer. As such the demand for household loans has halved since 2009, according to a report of FI.

The analysis is based on information ad related data from bank lending and the sample of mortgages granted in autumn 2011.

The proportion of households with new loans was the loans are 85 percent of value ratio of their home has fallen from 20 to 9 percent in two years. The survey also shows that 98 percent of all households who borrow more than the mortgage ceiling did so in amortisation, writes the FI.

Finansinspektionen (FI) has also done a so-called stress test to check how hard households are indebted. Generally, households are well equipped to sharp increases in interest rates, unemployment and price falls. However, individual households could still fin themselves in trouble, according to FI.

Fewer people mortgage their houses to raise money for renovation or to consume, according to a survey of a thousand households, half of whom had mortgages, which the bank SEB commissioned. 27 percent have borrowed for renovating the last three years. At the same a survey a year ago shoed that 30 percent responded that they had borrowed for the renovation. Two years ago the figure was 35 percent.

Five percent of the responding households said they had borrowed for home consumption, which is the lowest figure ever.

A rise in interest rates by as much as five percentage points leads to seven per cent of households with new mortgages to have a deficit in the household’s economy.

Of a house price fall by 15 percent then less than one tenth of the households which has signed new mortgage loan will have larger than value of their property. A drop of 20 percent means that one third of households will have a loan to value ratio exceeds 100 percent of the value of their dwelling.

If both house price falls by ten percent and unemployment increase to 20 percent, only half a percent of household will have deficit in their current household budget, whereas borrowing will exceeds the value of their dwelling. FI has counted on even worse scenarios, but the message is that households are generally holding up relatively well.
"Therefore Swedish mortgages system do not currently represent any threat to financial stability,” of the country, writes FI.
By Scancomark.se Team

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