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Sweden’s escalating household debt:

A familiar story?

byke
post 12.Nov.2012, 02:55 AM
Post #1
Location: Europe
Joined: 28.Oct.2008

Another interesting story reporting on the struggles Sweden could face in regards to soaring personal debt.

http://www.theglobeandmail.com/report-on-b...article5185573/
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John.Smith
post 12.Nov.2012, 07:34 AM
Post #2
Location: Sweden
Joined: 12.Sep.2011

Interesting read. Many Swedes are however a little 'too' buffered from economic shocks due to the strong welfare benefits. Also must be said that as per the article, it is really only the highest earners that seem to gear up with regards to debt.

I wonder if this is more a reflection of the taxation system employed, i.e. you need to invest a lot in order to earn a lot thus resulting in higher earners borrowing more??
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wondering
post 12.Nov.2012, 08:08 AM
Post #3
Joined: 3.Oct.2011

It really depends on how the economy goes.

As I see it due to lower supply in Stockholm, Malmö and Gothenburg the prices of apartments will probably continue to rise or have moderate falls.

I don't expect a great big fall like in the USA because most Swedes and their banks are very careful while giving and taking loans.

The US bubble was created by sub prime lending to people who were lured in to taking low or zero interest rates. Then were walloped with rising interest payments which they had no way of paying back, I don't see that happening here.

I have been reading about Canada as well and they too now have this issue with high debts but their Government is okay with that at the moment.

http://business.financialpost.com/2012/09/...till-needed-td/

But do note that right now the interest rates are quite low. So most people will not have problems paying back their loans or can do quite well. But when the interest rates creep up to 5-6% then I guess that we will start to see problems.
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wondering
post 12.Nov.2012, 08:10 AM
Post #4
Joined: 3.Oct.2011

Besides also saving money in the bank is just not worth it.

Banks have cut their savings rates and this could have an affect as people will switch to savings where they get higher returns. This in turn reduces the amount of money banks have to give out as loans.
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jostein
post 12.Nov.2012, 08:47 AM
Post #5
Joined: 22.Mar.2011

179% is an underestimation. Alot of this debt has been incurred to buy membership in "bostadsrättsförening" (uhm, housing association?). And these "bostadsrättsförning" have large debts in turn. It is popular to borrow money to make investments in the house. And new "bostadsrättsförening" have very large debts because it lowers the purchase-price.
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Gordy
post 12.Nov.2012, 09:02 AM
Post #6
Location: Skåne
Joined: 1.Oct.2005

Given the way that so many Swedish mortgages are structured with large portions of them being "interest only" it's hardly surprising that debt to income ratios are higher here in Sweden than say in the UK where all the capital is being repaid.

I don't agree with the Swedish system BTW, it's designed to increase borrower's borrowing power to levels greater than they could normally afford with a traditional mortgage system found in most other countries and has only served to assist in driving property prices higher and higher.

But having said that it only becomes a problem if interest rates take a big hike, no sign of that happening any time in the foreseeable future or if borrowers are forced into a situation where they have to repay the capital they have borrowed as well as the interest.

The banks have been lobbying for a change in the rules but given the catastrophic effects it would have on the property market I can't see it happening in one foul swoop at least, maybe a step by step approach if anything.
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Yorkshireman
post 12.Nov.2012, 11:21 AM
Post #7
Joined: 22.Nov.2011

QUOTE (Gordy @ 12.Nov.2012, 09:02 AM) *
I don't agree with the Swedish system BTW, it's designed to increase borrower's borrowing power to levels greater than they could normally afford with a traditiona ... (show full quote)

Fuel was added to that fire during the 90's after the collapse, since tax payers complained they were paying interest to banks that they had bailed out, as in I am borrowing my own (tax payers) money from the bank, and they have the nerve to charge Me interest!. Tax rules were changed, and throughout most of the 90's it was possible to get 100% interest back in the declaration. The remnant of that is todays 30%. Add into that that the value of the property has little significance to the bank, as opposed to the ability/income of the lender. Other countries have a system where the asset is the security, the bank also takes a risk, and they will only lend once they have valued the property.

QUOTE (Gordy @ 12.Nov.2012, 09:02 AM) *
But having said that it only becomes a problem if interest rates take a big hike, no sign of that happening any time in the foreseeable future or if borrowers are forced into ... (show full quote)

Most banks now test before giving a mortgage that your economy can clear +4 or 5% rate increase. The problem will not be so-much interest rates in the short-term, but more rather growing unemployment. There is very little protection for mortgage holders when unemployed, you are expected to sell your assets as part of social benefit rules. This includes your home, if it is not rented. You are better protected, though they can ask you to find cheaper place, if you are renting your home.

QUOTE (Gordy @ 12.Nov.2012, 09:02 AM) *
The banks have been lobbying for a change in the rules but given the catastrophic effects it would have on the property market I can't see it happening in one foul swoop a ... (show full quote)

Yes. In the current economy there is back reason to this. Remember the UK property market collapse? It was fueled by banks dumping properties onto the market driving prices down. The reason they were able to do that is because so many had mortgages that had capitalised a reasonable amount, therefore for the banks to recover the outstanding debt they just sold the properties for the amount outstanding ...that collapsed prices, leaving newer mortgage holders with loans greater than market value for the properties.

In Sweden, with so many mortgages that are not capitalised in anyway ... the banks can only recover defaulting loans by trying to maintain market values on properties! Because if they collapse the market, with so much debt left on peoples shoulders ... the banks will suffer Big losses in write-offs ...hence the wish for amortisation ... they want to cover their potential losses, as signs are not good within the economy.
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byke
post 12.Nov.2012, 11:27 AM
Post #8
Location: Europe
Joined: 28.Oct.2008

If a tree falls down in a forest and no one is around to hear it, does it make a sound?
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Mib
post 13.Nov.2012, 12:38 AM
Post #9
Joined: 7.Jul.2006

If unemployment doesn't suddenly jump and if interest rates don't suddenly jump, then Sweden will carry on up and down as long as there are no major jolts externally. The Government runs a surplus and can invest into the economy if needed in capital projects and stimulating growth in tax incentives etc. The propery market is not built on speculators...more based on the lack of both private dwellings as well as rental property, which is not going to change for the forseeable future. The impact of interest rates is softened by the 30% tax relief on mortgages and if you believe sme of the media, people have a reasonably positive view in purchasing power and property prices. Add in the heavily subsidised childcare (friends in the UK pay upto £720 per month per child), and lots of people have akassa, which is much better than what you get in the UK, if yo're a homeowner and the pressures here are less than in other countries.

In my experience, Banks here carefully vet your ability to pay your mortgage at higher rates...even when the market was booming. With the 85% lending limit to the value of the property and the ver small pay rises or zero rises over the last few years, the steam has been taken out of the sending spree to some extent.

Of course, it's not all roses...there are many dark alleys that Sweden cold fall into, but this country at least does not have a massive public debt like others adn combined with being outside the Euro and controlling their interest rates, means they can steer the economy more positively than others. Ask greece, Uk, Italy, Portugal, Spain, Ireland etc can they do that and most can't as they are in the Euro or are borrowing too much just to keep afloat. Investors have shown some confidence in Sweden partly in buying Krona , which has the negative effect on exports, although as not as bad as many thought. It's a fragile economy with many risks from trouble with Iran, fuel rises, global warming, food price hikes and another credit crunch if Europe doesn't sort itself out. Sweden survived 2008+...battered and bruised, but climbed out of the water quicker than others...but I certinly take nothing fro granted. If ic ould see the future, I would BET on it and retire, but unfortunately, not many people have that skill...especially me smile.gif
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Bender B Rodriquez
post 13.Nov.2012, 12:50 AM
Post #10
Joined: 25.Mar.2006

There was a public debate session today where the former PM (Göran Persson) and the former CEO of Volvo (P.G. Gyllenhammar) discussed the debt situation in Sweden: http://www.gp.se/ekonomi/1.1127245--italie...att-an-sverige-
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Mib
post 13.Nov.2012, 10:14 AM
Post #11
Joined: 7.Jul.2006

What always amazes me is that these ex Prime Ministers...Government officials have these ideas on how to fix issues and didn't say anything or worse didn't do anything much whne they were in power!

Yesterday, I saw the comedy at the Houses of Parliament where "shocked" MPs were interviewing Heads of Google, Starbucks and Amazon as to why they continue doing business in the Uk if they are losing money or why they are paying so little. It's like .... welll you guys are in f***ing Government...DO SOMETHING ABOUT IT. Change the laws or get the laws enforced if they're not being enforced and maybe stop cutting back on employees at the Inland Revenue, so they have the resources to get the due tax and stop making deals with big firms. It would be very funny...if it wasn't so serious!
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skogsbo
post 13.Nov.2012, 10:33 AM
Post #12
Joined: 20.Sep.2011

Heard a discussion earlier in the year, with the likes of KPMG and HMRC, about how years ago it was like cat and mouse. Accountants find a loophole in the tax rules, then HMRC would close it. And on the game went. Both said that for the past decade HMRC had stopped playing, apart from the newer EU tax rules and data sharing, its became easier for those who can afford it to avoid paying tax. Like you say, there'll be many a labour mp demanding the government does something, despite having 3 terms in power to fix it themselves.
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byke
post 13.Nov.2012, 06:38 PM
Post #13
Location: Europe
Joined: 28.Oct.2008

Seems like the Swedish finance minister was on the back foot today, when he used the following statement to justify or attempt to calm fears regarding Swedens personal debt levels.

"For my part, it is not evident that draconian measures to bring down debt levels are needed."

I love that the minister used the word "draconian".
Seems like a desperate attempt to save face and go on the attack.

http://www.reuters.com/article/2012/11/13/...E8MD82E20121113
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Gordy
post 13.Nov.2012, 07:17 PM
Post #14
Location: Skåne
Joined: 1.Oct.2005

May have something to do with the fact that our Anders is one of the most heavily indebted members of the Swedish Parliament. It doesn't do to be taking draconian measures against oneself!
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Hisingen
post 13.Nov.2012, 10:16 PM
Post #15
Location: Västra Götaland
Joined: 5.Jul.2012

At a guess, as very much a layman, I feel that all the politicians' talk, about millions here and billions there, has very little impact on the man in the street - and why? Because the figures are too huge to imagine. We lower down tend to be thinking more in say thousands, or maybe a million at most, because those are tangible figures. However we have to put our trust in someone, we can't go around distrusting everyone in power, much as sometimes things point in their direction.
Personally I don't have too much faith in politicians of whatever colour, nor do I have much faith in the press. Their colouring of the news leaves very much to be desired. That, I feel, leaves the man in the street pretty much at the mercy of whoever is holding the purse strings. I don't think that there are many of us who can say we truly understand the realms of high finance. How many, in all honesty, do understand? I don't for one. Primes, loans, covera ges, to many like me it is all gibberish. All I know is that, since the euro was introduced it has produced little but trouble, and of late plenty of it. Greece once had its drachma, and had they still had it, they could have devalued, and no doubt improved their situation, albeit with difficulty bearing in mind the state they had got themselves into. But they would not be experiencing everything dictated to them by a foreign power as today. As I see it, both Sweden and the UK are much better off outside the monpoly money system. OK - it fascilitates crossing borders, but with so many borders enclosing lands of such widely different standards, there is, to my way of thinking, not a great future for it. I would never support or vote for the euro as a currency for either Sweden or the UK. I never have, and as long as I live, which won't be all that long however, I shall speak against the monopoly money, since that is what it is, and as such it will have an effect on each and every country that is involved with its use. Pass jail and collect 200. That's money.

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