Interest rate puts pressure on indebted households

Households continue to be under pressure from both higher interest rates and other costs. This is evident in FI’s mortgage report. The report looks at new mortgagors during the autumn of 2023. We can see that there are fewer mortgagors than in previous years. Home buyers also bought slightly less expensive homes and borrowed slightly less. Total lending to households has stagnated, but despite this household indebtedness continues to be high.

The Swedish economy is in a recession. Inflation continued to be high in 2023, and mortgage rates continued to increase. Today, the average interest rate is the highest it has been since 2008. The interest rate is expected to decrease in the near future, but according to most forecasters, it will continue to be high for the next few years rather than returning to the low level we had up to 2022.

These changes in the economy are also influencing the housing market: the situation is cautious, and sales are low. This is evident in FI's mortgage report.

"A home buyer today must be prepared to spend a larger share of their income on interest expenses compared to in recent years. This impacts both how many households can borrow and how much they want to borrow. But even if lending to households has stagnated, total household debt continued to be high. We are watching this," says FI's Director General Daniel Barr.

Fewer new borrowers and fewer with large debt

We see that the number of households that took out a new mortgage decreased significantly. In earlier reports, the sample, which follows the development in new lending, included approximately 25,000 households. This number began to decline in the autumn of 2022, and in the autumn of 2023 the sample consisted of approximately 16,000 households. This reflects the economic development and the lower activity on the housing market in general.

Households that took out a new mortgage and amortised it spent on average after interest rate deductions 18 per cent of their disposable income on interest rate and amortisation payments. This is an increase of approximately 7 percentage points compared to the years 2017–2021, when interest rates were lower. In 2023, every tenth household spent at least 28 per cent of their disposable income on interest and amortisation payments.

Fewer households had a mortgage that exceeded 4.5 times their annual income before tax. In 2023, this percentage was approximately 5 per cent compared to 9 per cent in 2022. Both the average loan-to-income ratio and the percentage of households with a loan-to-income ratio higher than 450 per cent were back down at the level from 2018. That was when the stricter amortisation requirement was introduced.

The valve in the amortisation requirement is working

A bank may grant a mortgagor an exemption from the amortisation requirements for a given period if special grounds exist. The number of granted exemptions is still at a higher level than before. This shows that the valve in the amortisation requirement is working.

"When households' aggregate costs increase, the households become more vulnerable to changes that entail a loss of income, for example unemployment or illness. For these households, a temporary exemption from amortisation payments can be a huge relief," says Daniel Barr.

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