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Swedes' high debts spark housing bubble fears

19 Feb 2013, 09:04

Published: 19 Feb 2013 09:04 GMT+01:00

In an interview with the Bloomberg news agency, Martin Andersson, the head of Sweden's Financial Supervisory Authority (Finansinspektionen), expressed his concern about Swedes' mounting debts.

“Swedish households today are among the most indebted in Europe and we cannot have household lending that spirals out of control,” Andersson said.

One tool already in place to dampen the growth of Swedish household debt is a mortgage lending ceiling introduced in 2010 which caps the amount home buyers can borrow at 85 percent of the value of the property.

Another option cited by Andersson as a way to reign in mortgage lending is hiking risk weights bank place on mortgages, meaning they would need to have more capital to secure their mortgage loans.

Riksbank head Stefan Ingves has also suggested new rules that would require Swedes to pay down the principal on their mortgages, although Andersson refused to say whether his agency would consider such a rule.

Last year, Swedes' household debt hit a record 173 percent of disposable income, well above the 135 percent level during the height of Sweden's banking crisis in the early 1990s.

According to Sweden’s National Housing Board (Boverket), Sweden is already in the midst of a housing bubble, with homes overvalued by around 20 percent.

As property prices have risen 25 percent since 2006, Andersson warned of a possible "downturn" in the Swedish housing market.

Story continues below…

“House prices cannot just continue upwards in eternity," he told Bloomberg.

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Your comments about this article

09:34 February 19, 2013 by Mxzf
They keep saying that.

As long as it's cheaper to take loan and buy your apartment or house,

than to rent an apartment or a house of the same size and luxury level,

I fail to see how houses or apartments can be overvalued...?

(That's a pro tip for living in Sweden too: get a loan, buy your apartment. That's cheaper, better and no queues. Loans are scary, but the apartment is the security - you more or less just pay rent to the bank.)
09:46 February 19, 2013 by engagebrain
Housing bubbles burst, and burst suddenly leaving people with loans greater than the value of their property.

A the moment very low interest rates help to keep prices affordable and high, but low interest rates won't necessarily last.
10:41 February 19, 2013 by YuriG
Another option is to provide households with more disposable income so they can actually pay of the loans. Instead of burdening them with the excessive tax pressure that still exists in Sweden today.
13:06 February 19, 2013 by riose
@YuriG

Or you could increase half a point the interest rates.
13:18 February 19, 2013 by Eric1
We'll send Obama over to "fix" it. He has "fixed" America from a first world country to a three world country.
14:38 February 19, 2013 by Borilla
@Eric1

Another hater of black people speaking. Sadly, you know nothing of either Sweden or the US.

It is about time that someone spoke up about the coming burst of the housing bubble. Interest only loans and "adjustable" rates will continue to create the skewed housing prices. The only ones who benefit are the big owners (read FOF friends of Frederick). Nothing will be done about it until the bubble bursts and the bankers and all their friends get hurt. Then they will throw the middle class under the bus again.

@#1 - excellent advise for people - incur more debt than you can afford and when the bubble burst you can lose your home and everything else you own. There will be a long line to get on the TV program Lyx Fallen.
15:41 February 19, 2013 by djmarko
@Eric1 for the benefit of intelligent people here, maybe you can explain how Obama turned the US from 1st world into 3rd world, seems more like a personal abuse than anything of substance, Americans are still reeling from the trillions that was spent by the Bush administration on fighting unjust wars, how about that?? or is George Bush the right colour in your eyes?? see no wrong!! some pathetic bunch of people in here!
18:07 February 19, 2013 by Jules
Borilla & DJMarko maybe you two should re-read the post that offended you so much. Whatever you think of Eric1's statement he did not at any time in this post allude to Obamas skin colour. The first mention of race was by yourselves. Perhaps you should spend your time more profitably arguing against what he actually said rather than trying to stir up a racial argument to try and obfuscate his point and justify your own views.
22:40 February 19, 2013 by muscle
hmm who is to blame? atleast in sweden, more and more people are buying properties, because they are unable to find decent places at affordable prices in the first place!!!! people have to wait for years, before getting some affordable contract. and now with the modified rules, second hand contracts will cost even more. !!!
23:21 February 19, 2013 by Peter1234
This is a highly political issue. The Swedish government is simulating a low debt country by is moving all debt into private hands - using a policy of low interest rates on mortgages. The result is a HUGE property bubble - which still can be financed nearly for free if somebody wants to buy a property - but the bubble is waiting for the gib bang!

What come after the big bang?
10:45 February 20, 2013 by raheelj
I think sweden will make another history like Ireland in fact if someone has money then its a right time to flip the money into gold coins. Buy a property and sell with the great price.

In general I dont see this downturn will happen in near future since there is 30% shortage of apartments so still we have quite enough people for investors to make their money :)

Thumbs up for investors!
12:25 February 20, 2013 by Max Reaver
@Mxzf

You got soooooo many things wrong, here's why.

You said you fail to see how houses or apartments can be overvalued. First of all there is a difference between price and value. The true value of a house is determined by its innate properties e.g. location and condition. Price however is determined by market demands. During good times when lots of ppl with decent jobs can afford and want to buy houses, in the bidding process, the sales price of a house can be much more than its inherent value, thus it becomes "overvalued". This is not uncommon even in Sweden. My parents once went bidding for an apartment, in one day the bidders fought the price up to more than twice the starting price. At that point the real estate agents warned us to not bid any further, since the apartment was greatly overvalued.

Your statement of buying is cheaper than renting holds true only if the following conditions are met:

1. the mortgage + interest + maintenance fee do not become unbearably expensive. Apartments for sale are grouped in housing associations, you always have to pay expensive monthly fee to the association, which is usually more expensive than rental apartments. For houses the monthly fee for maintenance can be cheaper, but your mortgage + interest go up due to higher purchase price.

2. when you leave the house/apartment you can sell it at a good price. If you bought the house during a bubble and have to sell when its bust, start praying.

3. you always can support paying back the loan with good job, could be tricky if you get fired during a financial downturn.

Let's make an example here. You come to Sweden, the economy is good. You get a job and buy a house at 2 million SEK with loan. The house is worth only 1 million, but the market is hot you can't get anything below 2 million. A few yrs later, financial crisis kicks in, you lose your job, you cant sustain the cost of paying back the loan, then you are forced to sell the house. During crisis the market is cold, you can sell your 2 million house with the price of 1 million, what it's actually worth. From there you end up having 1 million in debt and homeless.
09:22 February 21, 2013 by unionisten
Well it all depends on where you have bought your house/appartment

If your in Stockholm you are pretty much safe since the housing shortage is incredible. ofcourse a total melt down might happen in the economy but lets not worry about that.

The ones whou should worry is those who have bought property to speculate like they used to do in Ireland.

If you have bought your appartment to live in then your safe
12:16 February 25, 2013 by John.Smith
Riskbank needs to increase the interest rates. That will curtail the credit crises and also slow down house price increases to inflationary levels. 25% in 6 years is steep but not property-bubble worthy if counteracted in the correct way.
16:03 February 25, 2013 by rohermoker
Most people buy housing based on emotion, not need, and therefore buy more. This makes the builders, and bankers happy. When things turn down property much like other things not of fixed value move with the market. What people fail to realize is if they buy more house than they have the cash for they are in effect renting from the bank, That is why here in the US the bank is the first name on the Deed, and you in effect renting to own from the bank, just like the"rent to own" furniture store. If you buy as a long term investment, pay cash (rembering that the price of the building and land should not be more than you can pay if you are out of work). You will be fine, if you are betting the value will increase more than the interest of the loan, you are gambeling--a fools enterprize.
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