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.
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.
Aggregate statistics indicate that Swedish households are holding significant assets in the form of cash, bank savings, fund shares and securities. The overall value corresponds today to an average of SEK 1 million per household. However, because these economic buffers are unevenly distributed between households, the average is a poor measure for assessing the risk of a significant drop in consumption following an economic shock.
Large credit losses can result in otherwise profitable banks reporting a loss. This FI Analysis describes a methodology for estimating how large credit losses can be in a stressed macroeconomic scenario.
The tax rebate for interest expenses – the interest deduction – means that households borrow more, and can and want to pay more for homes. This means that the households experience an increase in both their liabilities and assets, which in turn could have an impact on the stability of the financial system. In this FI Analysis, we calculate the impact of a change to the interest deduction. The reason for this analysis is the direct link between interest deductions and households’ loans.
The percentage of new mortgagors with a high level of debt in relation to either their income or the value of the home continues to be high. New mortgagors in 2019 increased their average loan-to-income ratio. The average loan-to-value ratio also increased in 2019 among new mortgagors, thus breaking the trend of falling loan-to-value ratios since 2013.
This FI Analysis shows that households’ tendency to use mortgages for purchases other than buying a home decreased following the amortisation requirements.