Unsound lending practices and commission from the sale of financial instruments are the highest prioritised risks in Finansinspektionen’s (FI) consumer protection assignment for 2022.
Swedish households continue to take increasingly larger loans. More new mortgagors than in previous years had both a high loan-to-income ratio and a high loan-to-value ratio. Higher inflation and rising interest rates mean that mortgagors have smaller margins in their personal finances. This decreases the consumption capacity at the same time as the mortgagors’ ability to repay their loan is impaired.
There are different types of lenders. They offer different types of loans, and their risk tolerance varies. The risk tolerance is evident in their business model, which consists in part of how they conduct their credit assessment. There are also different types of borrowers. Some want small loans, and others want big loans. Both the lender’s credit assessment and the borrower’s repayment capacity are often better for large loans. The small loans represent a large share of early repayment problems – reminders and collection notices. But the borrower can often pay back small loans before they are registered with the Swedish Enforcement Authority.
One of Finansinspektionen’s (FI) assignments is to promote a high level of protection for consumers on the financial markets. FI does this in part by conducting an annual survey of new consumer credit. The survey helps enhance our understanding of consumer credit and the risks it entails for borrowers. Loans and loan service payments have a major impact on household finances. For a borrower with an average income that takes out a large consumer credit, the monthly payment for the interest and amortisation payments can correspond to the payment of a significantly larger mortgage.
Since 2010, FI has implemented a number of macroprudential measures aimed at increasing the resilience in the financial system and subduing the risks associated with high and rising household debt. These measures include tightening the capital requirements on banks and introducing a mortgage cap and two amortisation requirements. In this report, we present an overall assessment of these measures, with a focus on the measures that, via lenders, place restrictions on households’ mortgage borrowing.
The temporary amortisation exemption resulted in new mortgagors borrowing almost 4 per cent more and buying homes that were approximately 1 per cent more expensive, concludes a new FI Analysis.
The ability to borrow is beneficial to households in many ways. At the same time, debt can make their consumption more sensitive to unexpected changes in interest rates, income, and house prices. This, in turn, can affect how the economy evolves in a crisis. But measures that lead to lower debt don’t necessarily increase the resilience of all households. To assess the effects of borrower-based measures, it is necessary to also consider households’ balance sheets, in particular their liquid assets.
New borrowers continue to take larger mortgages in relation to their income and the value of their home. At the same time, they have good margins for servicing their loans under weaker economic conditions.
Finansinspektionen has an assignment to promote the financial system’s contribution to sustainable development. The sustainability report outlines the current sustainability issues that are related to the financial sector and lists examples of what FI is working on in this area.
Paying by invoice or with other credit-based offers is becoming an integral part of shopping online. Young adults are unique with their small margins and large number of payment reminders and collection notices. Unaffordable loans are a prioritised consumer risk in this year’s report.