(Bloomberg) -- Sweden’s Riksbank cautioned that loosening requirements on mortgage amortization could lead to increased stability risks, pushing back against a proposal intended to make it easier for first-time buyers to enter the housing market.
The warning from the central bank comes after a government-appointed inquiry advised that households be allowed to pay down less on mortgages exceeding 70% of the value of the home. The so-called macroprudential rules were introduced in the wake of the global financial crisis amid concern over rising house prices and ballooning debt.
“If macroprudential measures become less strict, this could lead to a resumption of rapid growth in both housing prices and household indebtedness,” the Riksbank said in a financial stability report published Thursday. “This is not sustainable in the long term.”
Swedish households have some of Europe’s highest debt-to-income ratios, making the country’s financial regulator and the central bank skeptical of proposals to ease amortization rules raised in the the run-up to the 2022 elections. At the time, households were under pressure from rising mortgage rates and inflation, leading to declining consumption and home prices, and a near-standstill in the construction new homes.
What Bloomberg Economics Says...
We think the main impact of these changes will be a boost to Sweden’s housing market. The inquiry references a study pointing to about a 5% lift to home prices from amortization rules being relaxed. We think that’s the lower bound of the aggregate impact, given the additional push we expect from the higher LTV ratio.
—Selva Bahar Baziki, economist. Read more here
Riksbank Governor Erik Thedeen, who was head of the financial supervisory authority before taking his current role, told Swedish Radio that the result of the inquiry’s proposal will be higher house prices and a larger debt burden for households.
“We want this system to be robust enough for worse crises than the one we have been through,” Thedeen said. “That means you should act based on the precautionary principle.”
©2024 Bloomberg L.P.
