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Swedbank CEO demands amortization law

24 Jul 2012, 15:00

Published: 24 Jul 2012 15:00 GMT+02:00

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"It is important to do something about this while we still can," said Swedbank spokesperson Thomas Backteman to DI.

In a letter to the department of finance, the Swedbank CEO has argued that the existing voluntary commitment, which requires amortization on mortgages in excess of 75 percent of the property value, does not work particularly well.

The bank has thus called for legislation to force banks to act to encourage especially highly-leveraged customers to pay off their loans.

"We thus believe that the way towards a more robust system is via legislation as opposed to self-regulation," Backteman explained.

In his letter to the finance department, the Swedbank CEO has however stopped short of stipulating an exact level at which amortization would be legally required.

Wolf argued that if nothing is done and Swedish property prices declined by as little as 10 percent then Swedish banks would run into difficulties financing their stocks of mortgage loans.

This would in turn increase the cost of bank borrowing and thus threaten the broader Swedish economy, Wolf argued.

The bank pointed out that Swedish banking culture differs somewhat from the remainder of Europe.

"A normal European mortgage is paid off in 20-25 years. This is a structure we have previously had in Sweden and which we must now return to," Backteman told Dagens Industri.

Story continues below…

The Local/pvs


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Your comments about this article

16:05 July 24, 2012 by voiceofreason
I don't feel like paying off my debt in 20yrs, that will drive my monthly payment through the ceiling. Banks already compensate for this via Interest rates, it is called "RISK"
16:32 July 24, 2012 by oldonpalouse
My relatives in Sweden were talking about retirement and we asked 'have you paid off your home?' Got a blank, kind of 'brainwashed' response and we figured with some questioning that socialism didn't want them to do this. The first commenter sounded a different version of the same attitude, 'why should I, it's the government's responsibility to take care of me, 'I don't feel like' making the higher payments to get out of debt, it's the bank's fault'.

I am retired. I paid my property off so my savings income goes farther as I have no mortgage to pay. One can't trust the government to sent you Social Security, what if they fail? In 2007, when it was obvious we were in recession, I worked quickly to become debt free I hope for your sake that Socialism does not equate to 'broke'.

There must be people in Sweden who follow this practice of being 'solvent, cash only' also, or not?
17:53 July 24, 2012 by Twiceshy
Is he talking about interest-only loans? Yeah, I was surprised to hear that a friend of mine who bought a home recently in Stockholm is only required to pay interest on the loan.

If the house price goes down, he's definitely screwed...
20:22 July 24, 2012 by SOIS.COM
The banks offered the loans to consumers under the current rules. The banks should not be able to change the rules for current mortgage holders.

Are a lot of Swedes facing high levels of debt? Yes. Will banks run into problems if the laws are not changed and the economy tanks? Yes!

At the end of the day Banks are professionals that have much more information and the ability to process it in terms of managing risks. On the other hand, consumers, well a fair share at least, will take advantage of the credit markets in the short term regardless if it harms them in the long term.

Banks must stop thinking they can take undue risk and then depend on government to bail them out when they overextend via either legislation or outright bailouts. Banks must be small enough to allowed to fail just as any other company or individual would fail and become insolvent under a similar set of circumstances.

Let us hope the politicians in Sweden can take a careful look at the trouble banks got themselves in here a while bank and all the problems the banks in other parts of the world are currently causing.
09:51 July 25, 2012 by icedearth
@ oldonpalouse: It is not a matter of socialism or capitalism. Here , in North America the debt of households exceed imagination. There are many couples over there retirement age still working because they are still in debt. It is a matter of managing your personal finance well. Also, be realistic when buying a home. There are many strategies can be applied to pay off debt quickly to eliminate compounded interest from driving the price up, such as paying your mortg. free bi-weekly.
10:24 July 25, 2012 by chris ainsworth
depends how you look at it.

If you dont have your own property you still have to pay rent.

I would rather be paying interest only on my own property and taking the capital gain than paying off a property for someone else (rent).
11:22 July 25, 2012 by Twiceshy
It's all good until house prices drop, of course many believe Stockholm is immune to that... They may be in for a rude awakening.
21:19 July 25, 2012 by bjorkon
no sh*t sherlock. Someone points out the emporer got no clothes.

Problem is, now Sweden is caught between a rock and a hard place. Too late when most of your population are mortgaged up to the hilt, and the economy cannot stand a big drop in house prices that such a change in policy would dictate. Even if only for new mortgagees, this law would effectively force house prices down as the new "maximum" amount people could borrow is effectively reduced .. The only way to fix it is with very very careful gradual increases in amortization requirements.

And another thing - the so called "Swedish Fix" to the banking crisis heralded by so many over the past 4 years is just b*ll*cks - house prices have been allowed to reinflate partly through the erosion of amortization requirements.
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