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The Lowdown: Sweden’s new subletting law

Wondering what changes to Sweden's subletting law might mean for you and what you pay in rent? The Local gets the lowdown from one of Sweden's largest housing organizations.

The Lowdown: Sweden's new subletting law

Starting February 1st, 2013, changes to Sweden's laws governing the subletting of apartments and houses go into effect.

The political debate in the run up to the changes has been heated, and since the laws were approved by the Riksdag in December, speculation has been rampant about what the effects of the changes will be. Some claimed rents for sublets could more than double in some areas.

In order to better understand the changes, The Local caught up with Linn Matic, director of housing policy at HSB, one of Sweden's largest cooperative housing associations, with nearly 450,000 member residents across the country.

What are the key changes to Sweden's subletting laws?

One key change concerns the rent that a property owner can charge a subletting tenant. Under the old rules, the rent that could legally be charged was based on the average rent charged for similar rental apartments (hyresrätter) nearby owned by public or private housing companies. Those rents are set centrally through negotiations between rental-property owners and the Swedish Union of Tenants (Hyresgästföreningen).

But starting February 1st, flat owners can charge rents based on the costs of ownership.

What exactly counts as “cost of ownership”?

According to the new rules, rent charges can cover operating costs and capital costs. Operating costs can include monthly fees paid to the cooperative housing association (bostadsrättsförening), utilities, as well as a premium for wear and tear.

While the law doesn't mention mortgages specifically, property owners are allowed to charge for the “cost of capital”, which is at this time considered to be around 4 percent of the market value of the home.

How is market value determined?

If the home was recently purchased, the price paid by the owner can be used as the market value. Alternatively, one can look around at the prices of similar apartments in the neighbourhood and derive market value that way.

What are some more important changes?

The new law also changes how a property owner or the tenant can break the rental contract. Previously, property owners weren't allowed to break the contract, while tenants were required to give three months' notice.

After February 1st, tenants only have to give at least one months' notice if they want to move out of a sublet flat, while property owners who want a tenant to leave must give three months' notice.

SEE ALSO: Photo Gallery – Sweden's 'priciest' house for sale

Also, tenants can't assume that rental contracts are extended automatically and must move out at the end of the contract even if they haven't received any formal notice from the landlord.

So, tenants should make sure to check with property owners at least three months before their current lease is due to expire to avoid any misunderstandings.

What are my options if I think my rent is too high?

Now, as before, tenants who think they are paying too much can file a complaint with the Rental Tribunal (Hyresnämnden).

Previously, if the tribunal ruled in the tenant's favour, the landlord had to lower the rent and pay back up to one year's worth of the amount they had been overcharging. So, if a tenant had been paying 10,000 kronor and the tribunal found that the rent should have been 7,000 kronor, the landlord had to lower the rent to 7,000 kronor and pay back 36,000 kronor in surcharges.

SEE ALSO: Find your next home with The Local’s Rentals Section

After February 1st, however, landlords are no longer obliged to repay the overcharged rent, they simply have to reduce the rent to the level stipulated by the tribunal.

Do the changes affect existing rental contracts? And do they apply to both apartments and houses?

The new subletting laws apply to both houses and apartments, but only come into effect for contracts signed on February 1st and beyond. They also only apply to properties which are owned, rather than rental properites.

The subletting of rental properties (hyresrätter) is covered by Sweden's rental law (hyreslagen).

SEE ALSO: Photo gallery – Sweden's 'smallest' apartment in Lund

Thus, anyone currently subletting needn't worry that the conditions of their lease will suddenly change on February 1st. However, they should review their contract and see when it expires so they are prepared for changes that might take place upon renewal.

What other things should property owners interested in renting out their homes bear in mind with the new law?

Probably the most important thing to remember is that people must still get permission from their local housing association (bostadsrättsförening) before they can sublet an apartment. The government originally wanted to get rid of that condition as well, but it didn't end up as part of the final bill.

SEE ALSO: Check out the latest home listings in The Local’s Property Section

There are also some new tax deductions associated with renting out one's home. Previously, property owners could deduct 21,000 kronor from the income earned from subletting, but the new law increases that deduction to 40,000 kronor annually. Any income earned above that amount is taxed at a 30-percent tax rate.

So, the big question: how will these changes affect the rents prospective tenants can expect to pay when subletting an apartment in Sweden?

The effects will vary depending on the current difference between rents charged for rental-only apartments and the market value plus operating costs of apartments in the area. In Stockholm and the other big cities, I think it's safe to say that rents will likely go up because the market values are so high.

It will certainly be easier for property owners in Stockholm to justify charging higher rents.

Will the changes encourage more people to sublet and result in more subletting options, as the government hopes?

I think people overestimate the number of vacant apartments available for rent. In Sweden, most people live in their apartments, whereas it's more common in the United States, for example, for people to own a second investment property they own simply to rent to someone else.

It's also important to remember that the changes to the subletting laws only apply to one property. If someone wants to rent out more properties, those apartments must be sublet according to Sweden's rental law.

If anything, I think the new law may mean that people who plan to move in together may wait before selling one of their apartments and instead decide rent it out.

David Landes

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PROPERTY

Swedes have not been this pessimistic about house prices since 2008

House price optimism has taken a nosedive, according to the latest indicator report from Sweden's SEB bank. Sentiment among Swedes is now the most negative it has been since the 2008 financial crisis. What's going on?

Swedes have not been this pessimistic about house prices since 2008

How pessimistic are Swedish households? 

Very.

Households’ expectations for housing prices have fallen sharply this month, with SEB’s indicator dropping eleven percentage points in July, from -16 to -27, the lowest level it has hit since the financial crisis in 2008. 

The indicator, which has historically been a reliable predictor of house prices, turned negative in June for the first time since the pandemic hit in April 2020. 

The indicator is calculated by subtracting of the percentage of respondents who think house prices will fall from the percentage who think they will rise.

In July, the proportion of households surveyed who expected rising prices fell to 24 percent, down from 31 percent in June, while the proportion expecting falling prices rose to 51 percent from 47 percent. 

What is the reason for households’ pessimism? 

Américo Fernández, SEB’s private economist, told The Local that households in Sweden had reacted strongly to the decision of Sweden’s Riksbank central bank to hike rates, with most believing that the base interest rate would rise to 1.10 percent within a year.  At the same time, he said, households understood that inflation would reduce household spending power, making it harder for people to service large mortgages. 

“The result is not that surprising since inflation is on its highest levels since early 1990s and interest rates are increasing rapidly,” he told The Local. “These joint factors make it much more difficult for households to consume at the same high levels, meaning that they have decrease some of their consumption, and new mortgages and houses will be on that list.”.

He said it remained to be seen whether expectations improve again rapidly, as they did at the time of the pandemic, or would remain low. 

“Now the question is if this decline in expectations will turn around rapidly like during early pandemic (march/April 2020) or if it will continue in a negative slope like in the financial crisis of 2008.”

How badly has consumers’ spending power been hit by rate rises in Sweden? 

According to Christina Nyman, chief economist at Handelsbanken, a major Swedish bank, rising interest rates are already weighing on consumers’ buying power.

“For a household with loans of SEK 3m, this translates to additional costs of SEK 3,300 per month, which we believe is putting a cap on other consumption,” she said of the Riksbank’s rate increases so far. 

She warns in the bank’s most recent Global Macro Forecast that if the Riksbank speeds up its rate hikes, it could lead to a proper recession in Sweden.

“An acceleration of the rate-hike program could result in a drop in housing prices and a more severe recession,” she said.

Are we going to see a housing crash?

To qualify as a housing crash, home prices need to plummet by at least 15%, something which has not happened in Sweden since the 2008 financial crisis when prices in Sweden fell by as much as 20%, before rebounding gradually over the following years.

So far, it looks more like house prices in Sweden are set to decline more gradually, as there has been no new shock such as a stockmarket crash or banking crisis. 

How are homeowners responding? 

According to SEB’s report, 12 percent of households who currently have a fluctuating rate mortgage said in July that they are now planning to move to a fixed rate mortgage to avoid being hit by further rate hikes from the Riksbank, an increase of one percentage point from the June survey. 

The proportion who say they have already fixed the rate on their mortgage has risen by four percentage points to 37%. 

How might the average person be impacted?

Future buyers will profit from a drop in prices, despite all the suffering that frequently precedes a property catastrophe. On the other hand, the crash could be catastrophic for homeowners because they might have to sell their homes for less than what they paid.

Families who are forced to sell because they cannot afford their mortgage payments, for instance, or those who experience unemployment or illness, may therefore suffer significant capital losses.

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