New mortgagors took out loans that were 12 per cent larger last year than in 2020. The average loan-to-value ratio for new mortgagors rose from 307 to 327 per cent. This is the highest figure since FI started its mortgage survey. The stricter amortisation requirement has slowed rising loan-to-income ratios. The high debt means that borrowers’ personal finances are under more pressure when interest rates rise.
In general, new mortgagors have good margins for servicing their loans even if they were to experience weaker finances. However, because they have taken larger mortgages in relation to their income, they are more sensitive to higher interest rates than they were before, which in turn can lead to reduced consumption.
"The loan-to-income ratio of new home buyers continues to rise as interest rates are on their way up. This is worrisome since households with high debt are more sensitive to interest rates and may be forced to consume less. The fact that more mortgagors are now fixing their interest rates is one way to increase resilience to rising interest rates. But we believe it needs to be simpler and more inexpensive for households to repay their mortgages early," says Director General Erik Thedéen.
The average loan-to-income ratio rose to a record high while the loan-to-value ratio fell slightly. The percentage of new mortgagors with really high loan-to-income ratios is back to approximately the same level as before the amortisation requirement. There are also more new mortgagors than before who had large loans both in relation to the value of the home and their income. In the mortgage survey in 2021, 6.3 per cent of borrowers had both a loan-to-income ratio of greater than 450 per cent and a loan-to-value ratio of more than 70 per cent. In 2020, this figure was 5.8 per cent. Heavily indebted households are more vulnerable when interest rates rise.