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Most Swedes fail to prep for higher interest rates

TT/David Landes · 19 Oct 2009, 14:56

Published: 19 Oct 2009 14:56 GMT+02:00

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With the Riksbank’s benchmark interest rate at a historically low 0.25 percent, the mortgage rates paid by Swedish homeowners have nowhere to go but up.

Economists agree that the Riksbank will eventually raise rates, and that banks will follow suit, although exactly when remains unclear.

There is also broad agreement that Swedes holding adjustable rate mortgages should prepare for higher interest rates by either saving the difference between the interest they’re currently paying and what they would pay should rates move up to 5 to 7 percent – or start to pay down more of their loan.

But according to a study carried out by the Länsförsäkringar insurance company, very few Swedes have opted to follow economists’ advice.

In a recent survey, 86 percent of mortgage holders in Sweden haven’t made any specific changes to prepare for coming interest rate hikes.

During the last year, a household with an adjustable rate mortgage of one million kronor ($143,000) has seen its interest payments drop by about 4,000 kronor per month prior to tax deductions.

Within a year, interest rates are expected to rise. If rates climb to 4 percent by 2011, interest payments on a million kronor mortgage would be 2,000 kronor higher per month than they are today.

That so many Swedes have neglected to act is worrisome, according to Länsförsäkringar.

Only 6 percent of the survey’s respondents said they are saving more than they were previously.

Among cohabitating couples and married couples without children, the figure is only 3 percent.

Only 2 percent of respondent said they have started to increase payments on their principal.

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Nine out of ten respondents also said they have no plans to take out new loans.

The results come from the responses of 7,800 people between 16- and 69-years-old who were interviewed by PFM Research at the request of the insurance company.

TT/David Landes (news@thelocal.se)

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Your comments about this article

17:26 October 19, 2009 by BCR
I am currently looking for apartments in Sweden, and it is crazy what some people are willing to pay for a sh#tty 80 kvm apartment "with a view." The bidding usually start around 2.5 million and regularly end around 3.5 million SEK.

Most places don't have garage places included in the monthly avgift, and although the average seems to be around 4000 SEK, the newer apartment blocks charge horrendous avgifts of up to 10 000 SEK.

I wonder how these people think they will pay back the loan if the rate goes up to 6% (which is the average over the last 15 years).
17:52 October 19, 2009 by jhk
I was in the bank last week to get a fixed rate for 2 years. Was advised to keep with flexible as the rates wont change for at least 6 months.If they do rise it will hopefully only be a small one, so its better to have flexible now. The fixed rate was 3/4 of a percent higher, which in 1,5 rate was quite a lot. When they do go up, I guess we will all rush.:-)

7% nearly killed me, it was almost so bad I couldn't afford beer.
18:05 October 19, 2009 by BCR
Yes, I have made my calculations based on "if it the rate is at 10% would I have to move house?"

For me the answer is no. Life would be tough, and there would be significantly less meals out, vacations abroad, etc... but I wouldn't have to move house if rates were that high, which would also imply that the property prices would take a dive at that point. However, that is based on the premise that I am making interest only payments.

I do wonder what other people are doing...
19:08 October 19, 2009 by Nemesis
Next summer I am planning to purchase a house and sell my apartment. Hopefully the price of my apartment will cover the cost of the out of town house, I will buy.

Mortgages are best avoided if you can pay cash, otherwise get a fixed rate for as long as possible, so as to have stability in your payments, otherwise financial planning goes out the window.

Now is a very bad time to enter into a long term loan of any description. People are being to easily misled by low interest rates.

In Sweden they have a thing called Kronofogen, which I have saw take a kompis's home. They are merciless. They can not be reasoned with and give no extra time to make payments or sell anything to cover payments.

My last mortgage I planned for 20% in case of economic meltdown. That gave plenty of room to manouveur.

Always plan for a wide swing in interest rates, otherwise you could end up losing your property.

Plan your financies with plenty of financial room to maneuvour in Sweden.
21:08 October 19, 2009 by Mike #1986
My last mortgage I planned for 20% in case of economic meltdown. That gave plenty of room to manouveur.

mate that sounds a little deep 20% ahahhaha...

anyways the bottom line is if you can't afford it don't buy it!!!

people today buying 3million +homes at low interest have minimum 30,000 + salarys each and large savings and with good financial planing your sweet..
22:30 October 19, 2009 by Lisaann
This is worldwide problem! We the people have so much power in our hands, then we get suckered into traps. We all know that our salaries basically changes minimally over our livies, so when we secure a mortgage, the rate SHOULD BE FIXED, because it was based on your income, amongst other things. How could a Bank be allowed to change the interest rate, when consumers conditions does not change with the time. Our salaries rarely keeps up with inflation. It is pure greed, and greed alone that sends humanity into poverty. Banks do not care about you, they only care about making money from your money! Get it, its your money they play the markets with, and they get all the rewards!Sadly, even with the world recession, people have still not learnt ! If we all refuse flexible loans, the banks will have no choice but to offer fixed rates on mortgages. Time to think!
11:31 October 20, 2009 by Nemesis
@ Mike #1986

"mate that sounds a little deep 20% ahahhaha..."

Just good planning. Also I am not your mate, I am a big assed bitch:)

I always plan with wide parameters, as I want to retire early and have a good financial base to do so. It is also why I don't have a mortgage as I paid my of mine a lot faster than the bank expected, namely 5 years.

My home in this country and others are all paid for, all with good planning.

Anyone earning only 30,000 buying a 3million home will be on the edge of losing it at a rate of 6% to 8% when the mortgage rates go up again. At 12% they will most likely lose it.

Please do not give such bad advice in case someone is stupid enough to follow it.

Anyone earning 30,000 and getting a mortgage of 3 million to 3.5 million would need to have a fixed rate for at least 6 years so as to allow inflation to reduce the payments to the point they will not be at risk, upon being freed from a fixed rate under possibly high future interest rates.

I want to see people own there own homes, not lose them due to bad advice.

Please anyone purchasing a home, go over all the worst case scenarios and factor them into your calculations, so as to ensure you not only gain an investment but it is at the minimum risk possible. That way you will always have your investment, paid for by your hard work.
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