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Riksbank probes mortgage-repayment law

Riksbank probes mortgage-repayment law

Published: 15 Jan 2013 12:54 GMT+01:00

"There should be some kind of regulatory requirement on repaying housing loans," Ingves told the Dagens Nyheter newspaper (DN).

"It creates huge risks if the loans have an eternal life."

At present, it is relatively common for Swedes only to focus on their monthly interest rate payments rather than attempting also to pay down the principal on their mortgages.

"In most other countries, people pay down their mortgages to varying degrees. We're heading into a different world where we start to look like the odd one out and that increases the risks," Ingves told the TT news agency.

The best solution, according to the Riksbank head, would be if the banks could sort out the current system's shortcoming themselves "without being forced by others".

Sweden's Financial Inspectorate (Finansinspektionen, FI) is currently investigating how the system has been working so far.

"I think mandatory rules should be introduced if sufficient action is not taken [by the banks]. You can't just expect someone else to do everything," Ingves said.

"If the banks don't take the responsibility, then it will be up to the government," he said.

A spokeswoman from the SEB bank, Anna Helsén, said the bank agrees that the issue is important, but that steps are already being taken to tackle the problem.

"This is something the banks can decide, there's no need for legislation," she told TT.

"We have introduced a requirement for the home-owner to repay anything that exceeds 70 percent of the property's value. Mortgage payments are good for the customers themselves."

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Your comments about this article

14:25 January 15, 2013 by Mib
As long as the rules aren't stringent, then I welcome a policy where a mortgage holder has to show that they are making regular savings or offer a minimum repayment that they have to make each month to reduce the capital debt. At the moment, it is the perfect time to reduce the debt while interest rates are low.
14:54 January 15, 2013 by icedearth
Can someone please explain?

As far as I know, in any part of the world, when you pay off your mortgage part of your contribution goes towards the interest and the house ( usually the contribution is higher towards the interest).

Do the people in Sweden have a choice to leverage their contribution between the two? If so, I think they are smart to pay off the interest. No?
15:23 January 15, 2013 by Kevin Harris
Why can't the bank and I reach any loan agreement we choose? I'm a fully grown man, and the bank is an institution quite able to tale care of itself. What's it got to do with the government how I, or my bank, care to organise our financial affairs?
15:25 January 15, 2013 by djmarko
Interest only payments are quite popular in Sweden, people usually choose this option with the hope that their property will rise in value and once they sell, they can always make a good profit and re-invest in another property, probably more expensive, i recently sold my apartment , i tied one part interest and the 2nd part capital, i reduced the mortgage within 4 years, seems thats the way forward
15:57 January 15, 2013 by icedearth
Thanks Djmarko.

guys, what do you think of JAK BANK?
16:58 January 15, 2013 by Mib
@Kevin Harris......I agree to a certain degree. But, the Government seems to be very concerned about the level of mortgage debt and how the banks would be able to cope if there is a property crash. It'll end up being much more expensive for everyone if the Government is forced to intervene like those in the UK combined with a lack of lending, which inevitably follows causing even more misery.

As we've seen in Ireland, UK, Greece, Spain etc, greed combined with fraud led to the collapse of their banks leading to bail outs and austerity measures. However, IMHO... Sweden is in a stronger position to deal with these situations as the aftermath of 2008 has proven.
19:25 January 15, 2013 by AmericaninSE
When I bought my apartment in Sweden I was shocked that I was only required to pay just the interest each month. The guy with the bank gave me a funny look when I told him that I also wanted to pay down the principal so he had to redo the papers to include the amount I wanted to pay.
20:39 January 15, 2013 by Freelife
1. It is very hard to find rental apartments in Stockholm. Hence it is good to pay just the interest and live in an apartment. This suits well for the people with less income.

2. There is no law that prevents one from amortization. If one wishes to pay that they can do it.

3. The govt. should think serious to improve the housing situation. People need rental apartments. If the rental apartments are plenty, then people with less income can live rentals where as richer ones can buy with suitable amortization. This is the situation in many countries.
23:28 January 15, 2013 by pkpekka
In Finland you are not able to take 50 or 70-year loans. On the other hand, Sweden has a more stricter minimum requirement (only able to have a loan for 80% of the apartment?). But the minimum collateral requirement only applies to those buying their first apartment. Further down the line it has no effect and so debt levels in Sweden are about 50% higher as in Finland. Though Denmark and Netherlands are even worse, also because of interest-free loans and also tax deductions on debt. I have a loan in Finland (living in Stockholm) and it is for 20 years. In Sweden the maximum down payment time should be maybe 35 years, this would prevent further rises in housing prices. It is the most effective method to curb rising house prices.
12:28 January 16, 2013 by expatdave
You can't just expect someone else to do everything," Ingves said.

Nice comment, we can however expect the government to pull their heads out of the sand and fix the current housing mess. It's all well and good to force people to repay debt but this will effectively suck money out of the economy by reducing consumer spending as people will be repaying debt rather than buying those new jeans and secondly the people looking to buy their first home, well, you'll just need to keep saving for a few more years until you can afford the higher repayments. One can expect the banks are wise enough to take care of their own risk.
16:44 January 17, 2013 by rob582
Sort out the housing shortage first before you mess with my mortgage.
11:27 January 20, 2013 by matonbass
Sorry folks, but until you pay for something you don't own it nor do you have any rights as to how the owner of the asset that you are renting ( the Bank) decides that he wants you to repay your debt. if you want to buy a house or flat , save up your money and pay for it in cash. stop pretending you are a rich man. the banks can do what they like with your mortgage. you own nothing until the Capital is paid off. soon 50% deposit will be required by the Banks before they lend money for housing loans. ( i think that's how it should be ) what right have you to think you should have a house when you're only a poor person needing a loan ?
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