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Sweden Can’t Ignore Debt Burdens Way Above Norm

Governor Stefan Ingves said

byke
post 19.Dec.2012, 02:53 PM
Post #1
Location: Europe
Joined: 28.Oct.2008

Another strong statement regarding Sweden's debt burdens.
The question is how will it be addressed - or will it be pushed off to the next government.

http://www.businessweek.com/news/2012-12-1...orm-ingves-says
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oddsock
post 19.Dec.2012, 06:13 PM
Post #2
Joined: 19.Dec.2008

So the head of the Riksbanken said that the interest rate was cut to help the export sector, but now others will have to compensate and reign in the housing market by putting tighter controls on mortgages.

Funny that, it's exactly what I said on the other threat and I was derided.
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Bender B Rodriquez
post 19.Dec.2012, 06:22 PM
Post #3
Joined: 25.Mar.2006

QUOTE (byke @ 19.Dec.2012, 03:53 PM) *
Another strong statement regarding Sweden's debt burdens.The question is how will it be addressed - or will it be pushed off to the next government.http://www.businessweek ... (show full quote)

The government makes laws and handle the budget, so any action from the government is a long term action.
There have been proposals to introduce a law banning interest-only mortgages, but it takes years before laws can be implemented. Another way could be to change the rules on tax deduction, but that's yet another law that needs to be changed.

The big player is Finansinspektionen (FI), who makes sure that the banks follow Basel III. It was FI who introduced the 85% rule, so it is more likely that FI will intervene before any laws are made. As the regulating authority, FI can tell the banks what to do, the government cannot.
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oddsock
post 20.Dec.2012, 12:51 AM
Post #4
Joined: 19.Dec.2008

Surely it is easy enough to remove tax deductibility in the case interest only mortgages, no law is needed for that? It gives amortised mortgages preferential treatment. You can do that through a simple change in the tax code. That's what the Dutch did this year.
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Bender B Rodriquez
post 20.Dec.2012, 12:04 PM
Post #5
Joined: 25.Mar.2006

The tax code is a law in Sweden. Interest rate payments are considered as capital losses, and such are deductible from the total tax as stated in the Income Tax Law (1999:1229), chapter 67, paragraph 10, with percentages and everything.

The only thing one can change from year to year without any law changes is the basic tax rate (kommunalskatt). Virtually everything else is governed by law.
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Mb 65
post 20.Dec.2012, 03:42 PM
Post #6
Joined: 20.Nov.2006

Sweden doesn't encourage saving. Just spend spend spend. Cutting interest rates does not help inflation.
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Yorkshireman
post 20.Dec.2012, 04:32 PM
Post #7
Joined: 22.Nov.2011

QUOTE (oddsock @ 20.Dec.2012, 12:51 AM) *
Surely it is easy enough to remove tax deductibility in the case interest only mortgages, no law is needed for that? It gives amortised mortgages preferential treatment.

So what You mean is that all mortgage agreements terms that exist today should be formatted and sent to the tax office? Many of those so-called interest only mortgages actually have a token 500:-/year amortisation amount, so then there needs to be a minimum amount of amortisation set by Government that allows a tax deduction? In addition to that, one could theoretically borrow up to 100% with the minimum amount allowed amortisation, since only 85% is allowed secured on property, other loans are unsecured (and not classed as mortgages)

The 30% is not only on mortgages it is on all loan interest. But you only consider interest only mortgages?

If you looked deeper into the data, you would find that of that 174% of GDP private debt, 75% is related to property (one wonders if it is possible to get a split between country/summer home and main living property)
of that 75% total, 60% is held by the top 20% income earners in Sweden which are traditionally less effected by a downturn. That leaves 40%, of the 75% total, spread across 80% of incomes, those have already started to see a slowdown in mortgages due to the 15% capital requirement.

Consumer/student loan/unsecured debt however makes up the 25% of the total 174% of GDP debt ...which is a large amount that is not related to any asset! ...and is growing.

Read between the lines of Mr Riksbankchef ...he is saying that they are losing control over debt because the Banks are no longer playing the game by the traditional rules and that there is a limit to what they can do to bring them into line, which is why he hints (actually threatens mildly) that measures by authorities outside of Sweden might need to take action. I suspect he means the EU and the bank harmonisation.

You can play with rates as much as you want, and rules for banks also ... but the fact remains that in areas like Stockholm demand outstrips supply quite a lot ...making it more expensive to purchase property will just increase salary demands, which can pay for the increase.

Removing rent controls, and allowing rents to float upwards (as they will) will then encourage new builds because it becomes profitable, and that will help stablise things also as the gap between renting and buying closes.

What you do need to keep in mind is that one of the reasons that private debt in property has risen greater than before, is not just due to inflated property prices ... in say Stockholm, those people did not have loans before, during the last 20 years a large percentage of the stock of the rental properties were converted to BRFs, with many 1st time mortgage holders. Now that may have peaked, maybe not, there is still some buildings that may convert... but now is when the prices, taking supply and demand into consideration, may have actually found their real level. And many of those initial mortgages are running at around 60% or so of the market value for the property.

Consumer debt however certainly needs tighter controls. It is too easy, eg. You can SMS:a loan in seconds.

Remember, Banks do not like low interest rates, when interest rates are cut you are cutting their income, they either need to start reducing their operational costs further (firing people etc...), or they need to increase their loans to customers to generate additional income, after-all they have their shareholders to answer to.
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oddsock
post 25.Dec.2012, 02:17 AM
Post #8
Joined: 19.Dec.2008

QUOTE
Many of those so-called interest only mortgages actually have a token 500:-/year amortisation amount, so then there needs to be a minimum amount of amortisation set by Government that allows a tax deduction?

Yes, the rule in the Netherlands now is that only mortgages which are fully amoritised after 30 years qualify for interest deduction.
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