Measures against Swedes’ high indebtedness
For quite some time now, there has been a concern that we Swedes have a fairly high level of debt and that this could pose problems in the future. There are risks to this and in the short term we can end up in an economic crisis if we do not handle the situation. For example, having a high debt can be dangerous if interest rates start to rise properly and it can also affect the country’s economy in different ways.
The measure that has been proposed to counteract the problem is a mortgage repayment requirement. It would simply work so that everyone who obtains a new mortgage, after this requirement has been introduced, has to repay their loans at least down to a certain percentage and for a certain number of years. The point of this is to make sure that people not only leave their mortgages on but to repay them, which in itself is risky but also something that many unfortunately do.
The repayment requirement was previously relevant
But was postponed because the Swedish Financial Supervisory Authority, which would take care of enforcing this, is not entitled to make that type of decision and impose such requirements on borrowers. They are just an authority and do not have the powers.
Recently, a proposal on this recently came up again and it looked like that proposal was coming through, but it was again shot down by the Administrative Court of Appeal. This time they had been changed so that it was the government that would make the decision, but the Court of Appeal states that there must be some kind of support in the legislation in order to enforce an amortization claim.
It is not necessarily the end of the mortgage repayment requirement, it is still possible to execute the proposal, but given the setbacks, you may want to think a little further about it all before deciding how the proposal should be structured.
One of several measures to get our debt settled
As mentioned, the mortgage repayment requirement is the first proposal for a measure to try to stabilize the Swedes’ indebtedness and reduce the level a little. However, this is not the only proposal and many people say that just one amortization requirement will not go very far. Many more measures are needed to make a real difference, for example, says the Governor of the Bricks Bank Stella Wise and also many others who are in control of finances.
Ingves recently talked about two other measures that might be needed. First, it was to reduce or completely remove the interest deduction. The interest deduction works like you get a 30% deduction on the interest on different types of loans. This applies not only to mortgages, but also to private loans and other loans, but it is of course primarily for mortgages and large private loans that you really notice this deduction.
Reducing the interest deduction
This properly or removing it altogether seems to be a measure that many think is a good step because it would hamper the loan part. It is already very cheap to take out a loan given the very low interest rate level and then it will only be cheaper to borrow if you also have a 30% deduction on the interest rate on your loan. However, the big question seems to be how in practice we should go about removing the deduction and how to balance it purely financially.
What is good about a reduction in the interest deduction is in my opinion that it affects everyone who has a mortgage. It is not only something that falls on those who obtain a new mortgage loan in the future, but it is also something that existing borrowers are affected by. An amortization requirement would only apply to those who obtain a mortgage loan after that requirement comes, but reduced interest deductions are known to everyone. This means that even those who have had a mortgage loan before may start thinking about and amortizing better, for example.
A debt ceiling can become a reality
Another suggestion that Stella Wise has talked about, for example, is a debt ceiling for borrowers. The idea is to introduce a limit on how much you can borrow in total in relation to your income. This would then apply to disposable income, that is, what is left after the tax is deducted. This means that if, for example, the debt ceiling were at 400%, it would be possible to take out a loan that corresponds to four years’ income after the tax has been deducted (however, you can add a contribution to that amount).
A debt ceiling can in itself be a perfectly ok idea, but if you set the limit as low as 400%, which was what Ingves himself suggested, it would affect very many who want to borrow for housing. It would affect especially those who want to live where it is expensive, especially in the big cities, and even younger people who want to buy their first home and who may not have as high income yet.
In order for it to work with a debt ceiling, you have to find a reasonable level of it so that you do not prevent too many people from taking a mortgage. In some cases, 400% might be ok, but in larger cities where housing is more expensive, it becomes difficult. A survey conducted by the Bricks Bank during the summer, for example, showed that four out of ten would be affected by a debt ceiling at this level and in the big cities as many as six out of ten would be affected (in a way that they would not be able to buy the housing they had otherwise done) .
I think more measures are needed to get the Swedes’ debt settled and a debt ceiling can clearly be an alternative. It’s just a matter of finding a reasonable level on the roof. An alternative could be to set the limit a little higher, for example 600%. Then it would still have some effect but only affect about 12% of all borrowers and 20% of those who wanted to buy housing in big cities. There are some more reasonable levels. Then it is always a balancing act because if you set the limit too high, the effects are simply too small and then the action itself is meaningless.
The future of mortgages
It is not easy to predict the future for those who want to buy a home and take out a mortgage, but it is likely that some requirements and changes will be introduced that will make it a little more expensive to borrow and which will not allow you to take out a mortgage. equally large mortgage loans. This is, of course, a bit sad in a way, because all of us who have been thinking about buying a home in the future will have to “suffer” because of the entire country’s debt ratio.
Those who already have a mortgage loan are now more relieved and it is mainly new mortgage borrowers who can take the knock. If you only see it this way, then of course it will not be so much fun, but you will also see it that we need these measures to reduce the risks of an economic crisis in the future. A crisis would hit us all and on the whole it is a clearly worse alternative than we get some tougher demands on our borrowers.
Pay the price for us to avoid a crisis
But it is still something that one must take. Right now, the housing market is also very bloated. Housing is expensive because there is a shortage of housing while it is cheap to take out mortgages. I don’t want to call it a housing bubble, but it is at least a clearly higher level than what actually feels reasonable.
If there are new measures such as amortization requirements, lowering of interest deductions and perhaps even a debt ceiling, plus possibly a higher repo rate, then the pressure on the housing market will reduce a great deal. There may then be some tougher requirements for those who want to take out a mortgage, but at the same time housing will also be cheaper – so it may even level out to some extent.