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HOUSING

Homeless single mothers: Child allowance counts towards rent

A woman risks becoming homeless after a Stockholm public housing company ruled out her child allowance as a legitimate source of income, writes Elizabeth Dacey-Fondelius. Now the rental companies have seen the error of their ways. But for this single mother of two, the clock is still ticking.

The woman, who asked to be named by her surname only, Hansson, will try again to secure a stable and permanent home for herself and two young daughters on Monday April 27th. She is invited to a viewing of a rental apartment in the new Stockholm residential neighborhood of Hammarby Sjöstad.

The new opportunity comes none too soon as her current sub-let will run out on May 31st. If the one-bedroom apartment suits her little family’s needs, Hansson is ready to sign a lease. The chance the apartment will be hers is still relatively small since 27 interested hopefuls must decline their opportunity to sign first. Hansson is 28th on the list.

While it’s a long shot, it’s not impossible. In fact, a similar long shot nearly paid off just a few months ago. However, the victory was short lived when Hansson’s income was deemed insufficient for the monthly rent. This came as a surprise to Hansson.

“I was sure I would make the cut off when I added up my total income according to the general information.”

Currently she pays about the same in rent as the new apartment would have cost. She adds, “I even save about 4,000kr per month as well.”

According to the information on the Stockholms Stads Bostadsförmedlingen website (the public rental agency which manages the waiting list and the list of available rental units) the three largest Stockholm rental companies use the same minimum income determination. That is defined as: “The total sum of gross income including allowances shall equal three times the rent for the unit in question.”

The description goes on to clarify that “income” is defined as, “Salary, student grants, welfare allowances, housing allowance, child support payments, unemployment allowances or similar.” With this description Hansson took for granted that the child allowance was included. She was wrong, or so said the rental company which owned the apartment block, Stockholmshem.

Oddly, Stockholmshem excluded the child allowance (barnbidrag) in their calculation.. The reason, according to Birgitta Gradin, the person responsible for the income calculations at Stockholmshem:

”We had chosen in our work routines to only include allowances which are housing related and therefore the child allowance was not included.” Without the child allowance in the calculation, Hansson’s income was just under the cut off calculation for the 8,800 kronor monthly rent. She got passed over and the apartment went to someone else.

Hansson’s rejection came to the attention of the media as a result. Due to her unfortunate situation, Stockholmshem quickly revised its policy. Björn Ljung (Lib), chairman of Stockholmshem, told The Local that upon hearing of Hansson’s case he reacted directly.

“I thought this policy was quite strange as this is one of the most stable incomes anyone can have. I called immediately and said that we have to change the policy right away.”

While Ljung was quite sympathetic to Hansson’s plight he felt there was nothing Stockholmshem could do to rectify the injustice since the policy dismissing the child allowance was in place at the time Hansson was rejected.

He offered optimistically: “From now on she’s going to be accepted as a tenant by all three of the Stockholm rental companies [if they need to calculate in the child allowance.]”

Despite the friendly optimism expressed by Björn Ljung and the change in work routines, Stockholmshem will not publish for public availability the actual allowances included or excluded in the qualification calculation. Gradin insists that all 12 people responsible for calculating incomes have been informed of the procedural change.

“We have regular department meetings and job training along with daily meetings with colleagues. When we make changes [to procedures] everyone is informed.”

The Local checked in with the other companies to hear how Hansson’s case has affected their income calculation policies and routines.

Another of the three giants, Familjbostäder, confirmed that they now include child allowance in the income calculation as a matter of course. Mia Wester Carlsson, the information officer at Familjbostäder, investigated the transparency of the policy as a result of The Local's probe and was happy to report that clear information will now be available as part of the firm's FAQ page.

Carlsson added, “It’s important for this information to be available to our customers.” She said a memo would also be distributed internally to be sure all agents who evaluate a potential tenant’s income are fully apprised of the policy change.

The apartment Hansson is hopeful to get this Monday is owned by Svenska Bostäder. According to their spokesperson, Fredrik Jynell, “We have accepted child allowance [as income] for a long time.”

The monthly rent for this particular unit is 8,200kr per month. Without the child allowance income included in the calculation, Hansson would be under the minimal income by about 200kr per month. When asked specifically about this unit Jynell said definitively, “If she is the tenant who will be offered the apartment we will calculate in the child allowance amount.”

If any of the 27 people ahead of Hansson on the list indicate they would like the apartment, she is back to square one still in search of a permanent home for her young daughters.

“It would be nice to have [permanent housing] secured before my older child starts school this autumn.”

Regardless of this Monday’s result, it is thanks to Hansson that many other parents applying for apartments will benefit from the new clarity in the definition of which allowances are included in the income calculation.

It’s now official: child allowance is counted as part of an individual’s total income. Let’s keep our fingers crossed for Hansson and her girls.

 

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PROPERTY

EXPLAINED: Will Swedish housing prices plummet as interest rates rise?

The Swedish financial supervisory authority warned on Wednesday that rising interest rates could lead to house prices falling "quite sharply". How likely is it that this will happen?

EXPLAINED: Will Swedish housing prices plummet as interest rates rise?

What financial circumstances might make it difficult for borrowers to repay loans?

With an increase in the cost of living, including rising interest rates and rising electricity prices, there are plenty of circumstances that may make it difficult for borrowers – especially those holding large debts in relation to their income – to repay their mortgages.

Households with large debts are therefore more sensitive to an increase in interest rates, according to the Swedish financial supervisory authority, known in Swedish as Finansinspektionen (FI).

The agency published its annual Swedish Mortgage Market report on Wednesday.

“Large debts also mean a higher sensitivity if you were to suffer unemployment during an extensive recession,” said Henrik Braconier, the authority’s chief economist.

Other factors that could stretch borrowers’ finances include rising energy prices, higher food prices, and growing inflation.

“Apples, oranges, tomatoes have gone up by 30 percent,” said Américo Fernández, a household economist at SEB. “Wheat is coming from Ukraine and it’s getting harder and harder to get hold of.”

READ ALSO: 

Will homeowners become unable to repay their mortgage loans?

Not according to Fernández.

“One of the last things Swedish households will fail to make their payments on is their mortgage and their houses,” he said. “They would rather decrease their spending on vacations abroad, or restaurants.”

The FI report noted that most new mortgages include margins that allow for fluctuations in the borrower’s finances. This means that mortgage holders have a cushion that allows them to handle financial changes.

“Our stress test shows that they can handle increases in the interest rate and also loss of income,” said Magnus Karlsson, FI’s director of macroanalysis. “New mortgages have margins in them calculating discretionary income, and will be able to absorb increases in interest rates and loss of income.”

SEB foresees an interest rise of up to three percent over the next two years, Fernández said,an increase that can be absorbed by most households.

Both Fernández and Karlsson agreed that if homeowners have to cut back on spending, those cuts will not come from debt repayment, but from their disposable income – the money they might ordinarily spend on entertainment, eating out, or travelling.

So while household spending may have to change, financial stability is not at stake for most households.

What’s going on with the housing market?

Right now, a record number of mortgage-holders have loans that are worth more than 4.5 times their income. This year, more than 14 percent of new mortgagors took on such large loans, compared to 6.3 percent last year.

A “low interest rate, increase in housing prices, increase in disposable real income and a housing market that is not functioning well” are all factors in the large debts that homeowners have incurred today, Karlsson argued.

Fernández noted that there is an imbalance between the low supply of housing and the high demand for housing, which is in part responsible for the high housing prices we see today.

He said a decrease in price of a few percentage points would not be surprising: “We’re coming from two years of exaggerated prices.”

Will housing prices begin to decrease after two years of increasing prices?

Calculations for three different scenarios tested by FI show that housing prices will decrease, Karlsson said.

While the agency does not predict housing prices, its report shows that under three different scenarios – the first an increase in mortgage interest rate, the second an increase in energy prices, and the third a combination of the first two with a reversal to pre-pandemic housing preferences – prices will decrease.

The Local Sweden reported last year about increasing housing costs in Sweden, spurred on in part by a desire for bigger homes further away from urban areas during the COVID-19 pandemic.

Fernández called the two years of increasing housing costs “surprising.”

“10-12 percent two years in a row, that’s historical in these uncertain times,” he said, noting that prices were still increasing in figures for March this year.

What sorts of housing will see the largest price decrease?

The FI report also included various scenarios of how the price of different types of housing may fluctuate based on changes in the interest rate.

One scenario assumed a 1 percent increase in interest rates this year and a 0.5 percent increase next year, and predicted that while the price of apartments owned in a cooperative – called bostadsrätter – would fall only slightly, the price of detached houses would fall by 10 percent.

Another calculation that accounted for rising electricity prices and a decline in new housing purchases found that the price of bostadsrätter and detached houses risked falling by an average of 30 percent.

Is there a plan to let borrowers end their mortgage terms early?

“We believe it needs to be simpler and more inexpensive for households to repay their mortgages early,” FI Director General Erik Thedéen is quoted as saying in a press release published by the agency on Wednesday.

To that end, Thedéen said at a press conference that the agency had sent a request to the government to change the calculation model for how banks are compensated when mortgages are terminated early.

“When you terminate a loan agreement and the bank incurs costs, it must be reimbursed,” Thedéen said. “But at present the banks are overcompensated, that is what our calculations show. If the government follows our line and changes the model and follows our line, then the banks must simply adapt.”

When asked about the likelihood of this request being granted, FI recommended reaching out to the Ministry of Justice for comment.

What does this mean for foreigners in Sweden?

If you’re already a mortgage holder, then as Karlsson and Fernández assured, mortgage calculations include a cushion that allow for changes in your financial circumstances.

If homeownership is in your future, housing prices may begin to decrease in the near future, so it’s worth keeping an eye on your local real estate listings.

By Shandana Mufti

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