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HOMES

Five questions before buying a Sweden home

The Swedish financial watchdog recently scrapped plans for new mortgage rules, meaning you can still buy a home in Sweden and never pay off the full loan. Here's The Local's guide to the five main things you need to know before taking your first step on to the property ladder in the Nordic country.

Five questions before buying a Sweden home
Here's what you need to know before buying a home in Sweden. Photo: Fredrik Sandberg/SCANPIX

1. Can I afford a home in Sweden?

With its chilly winter climate and famously expensive restaurants, Sweden might not seem like the obvious place to move to or buy a holiday home in. But Johan Vesterberg, head of press for Sweden's largest estate agent, Fastighetsbyrån recently told The Local that with just a €100,000 budget (£72,000, $106,009, 933,210 kronor) “you can find a decent property in most parts of the country, it will just be a question of size”, especially if you stay away from the coast and avoid the nation's major cities. And with record-low interest rates, now is the time to strike.

While in many other countries the rules of borrowing are quite simple (letting you borrow, say, up to five times your salary), in Sweden it's a bit more complicated with many factors involved.

Here's a quick example though, according to SBAB's (the nation's state-owned mortgage broker) mortgage calculator. Say you wanted to buy a 50-130 square metre house in Stockholm municipality and were able to pay 10,000 kronor towards it a month (including paying off your mortgage, housing association fees and utilities costs), you would be able to borrow 1,812,254 kronor (85 percent of the property's value) to buy a home for approximately 2,132,064 kronor, paying a cash deposit for the remaining 15 percent.

However, it is not an exact science and you should always discuss potential property purchases with your bank manager or lawyer first.


Swedish dream homes are cheaper than you think. Photo: Johan Willner/imagebank.sweden.se

2. How does the viewing process work?

If you're looking for a home in the Gothenburg, Malmö or Stockholm areas, make sure you approach estate agents as soon as you're thinking of buying. Rising prices and high demand for apartments in Sweden's three largest cities have led to a growing number of properties being sold without public viewings, according to a survey carried out by SBAB.

The shift brings Sweden closer to the approach favoured in other European countries such as the UK, where customers in property hotspots are often granted private viewings. However, the most common approach in Sweden is still for potential customers to attend an open house viewing before they submit their bids for the property.

3. How do I win the bidding war?

Via text message. Yes, you read that right. In tech-savvy Sweden, the bidding process is often done by sending the amount you're willing to pay for the property in an SMS to the property agent until your fellow prospective buyers back out and a price is agreed on.

Rent a home in Sweden with The Local

In many parts of the world, the seller sets the price and then negotiates with potential buyers, with the final price landing somewhere in the middle. In Sweden, buyers try to outbid each other – often resulting in a windfall for the seller. Make sure you meet with your bank beforehand to agree on how high you are able to go as there are no legal regulations on these bidding wars, which tend to push costs well above the asking price – especially in attractive city regions. Tor Borg, chief economist at SBAB told The Local that his main advice for customers was to “keep your head calm and don't get engaged in offering a price that you cannot afford”.

READ MORE: One in five flats sold before viewing starts

The whole process is usually lightning fast. Bidding starts just days after the public viewing and, if the final price is satisfactory to the seller, the deal can be closed within the week. Before you know it, you're a home owner and a member of a 'bostadsrättsförening', a Swedish housing association.

4. What exactly does a housing association do?

When you buy a home in Sweden, especially if it is an apartment, you are likely to become a member of the tenant-owner association which formally owns the building. You have to pay a monthly fee to the association, which can have a huge effect on your living costs, so don't forget to check how much it is before you buy.

The housing association manages things like maintenance, the building's finances and other issues that might arise. It appoints a board of directors to represent the organization at the annual meeting of members, which are notorious for their wild debates on everything from large building renovations to finding out who forgot to remove the fluff from the dryer in the common laundry room.


The process from finding a home to buying it is lightning fast. Photo: Pontus Lundahl/SCANPIX

5. How do I pay off my mortgage?

In Sweden, house buyers usually need to be able to pay at least 15 percent of the cost up front, with mortgage providers offering a loan of up to 85 percent of the value of the property. You can choose how fast you would like to pay off your loan. 

Mortgages account for 95 percent of Swedes' total debt, and borrowers currently hold a mortgage debt 3.7 times higher than their annual income. Up until recently mortgage holders did not have to pay off their loan, but Sweden has now created a rule that they must 'amortize', as the concept of repaying your loan in increments is known, after concerns that Swedes were accumulating debts they could never repay.

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HOUSING

Money hacks: How to get the best deal on your mortgage in Sweden

Taking out a mortgage is a big commitment not only financially, but it also ties you more closely to both Sweden and anyone you're buying the property with. Here's our complete guide to understanding a Swedish mortgage.

Money hacks: How to get the best deal on your mortgage in Sweden
Taking that first step on the Swedish property ladder can be daunting, so here's what you need to know about mortgages in Sweden. Photo: Fredrik Sandberg/TT

How do mortgages work in Sweden?

Your mortgage is a long-term loan allowing you to buy a property – the Swedish word is bolån, literally meaning “living loan”. Because housing prices are high, it’s usual to put down a small amount of the total cost (your deposit or kontantinsats) and borrow the rest from a bank, which you pay back in agreed installments over several years. 

In Sweden, the first step of the process is getting a lånelöfte, literally a “loan promise”. You can do this either at the start of your house-hunt or when you’ve already got a specific property in mind that you’d like to buy.

It’s a good idea to do this early on in the process, because it can make it quicker to get the loan once you actually need the money, ensuring you don’t miss out on your dream apartment since the buying process is relatively fast-paced in Sweden. However, you should already have an idea of your budget when you apply for the lender’s note, because that will influence how much the bank will agree to lend. 

If you’ve still got questions on how the rest of the house- or apartment-hunting process works, check out our guides below first:

What do I need in order to get a mortgage in Sweden?

You’ll need a Swedish personnummer and proof of stable finances in Sweden, and you’ll be subject to a credit check. This means that you’ll usually need a history of employment and paying tax in Sweden, although some banks are more lenient than others when it comes to, for example, self-employed people or recent arrivals.

If you still have Swedish student loans to pay back, this will be taken into account when calculating your mortgage, however student loans in other countries are not usually factored in.


Photo: Fredrik Sandberg/TT

The exact amount you can borrow depends on how many of you are in the household, your income(s), what kind of employment you have (permanent is more secure), your deposit amount, any other loans you have, and how much your monthly fee (avgift) will be if you’ll be buying a property that belongs to a housing association (BRF) or the size of the home if you’ll be going for a detached house.

How can I get the best rate?

Your mortgage is very likely to be your single biggest household cost, so it’s worth shopping around to make a saving. Remember, even a small decrease in terms of percentage points could add up to thousands and thousands of kronor over time.

Using price comparison tools such as Compricer or Konsumenternas is a good start. Next, call up several of the banks which seem to offer the best deals; it’s a good idea to prepare for these calls by doing some sums beforehand, comparing the different deals on the market so you can pit them against their competitor and show them you know what you’re talking about.

Members of trade unions are offered discounts at several banks, so be sure to ask about this if you’re eligible, and some banks offer discounts on mortgage interest for certain types of homes, for example energy-efficient properties.

And there may be room to negotiate a better offer than the one offered online, especially if you set up a meeting or phone call. If you’re an existing customer at one bank but they haven’t offered the most competitive rate, it’s worth seeing if they’ll match the better rates you’ve found in exchange for you taking out your loan with them.

But watch out for offers that look attractive but come with hidden costs. For example, banks usually require that you have a current account with them in order to take out a mortgage there, so look out for any requirements such as expensive cards. Don’t forget to include any extras when calculating your monthly costs with different banks.

Make sure you know exactly how long any discount or reduced rate will apply for. Why not set a calendar reminder for this date, so you’ll be ready to renegotiate once the original offer expires? Either way, make sure you renegotiate your terms regularly so you’re confident you’re still getting the best deal.


Photo: Tomas Oneborg/SvD/TT

What do I need to know about joint mortgages?

If you’re buying with a partner, you’ll likely be sharing the mortgage. Remember that two people who live together as a couple in a shared household are given the legal status of sambo (cohabiting partners) in Sweden.

This means that any property you purchase together with the intention of sharing as a couple may be subject to 50:50 division in the event of a breakup, even if one partner paid a larger share of the deposit. Some couples choose to draw up a written contract (with assistance from a lawyer) which states what would happen if they split up.

Exactly how much do I need to pay?

When you buy a house in Sweden, you’ll usually need to pay a minimum of 15 percent of the total price as a deposit (kontantinsats), so the remaining amount will be covered by the mortgage. You’ll pay back a certain amount each month over a fixed length of time, often 25 years.

If your deposit is less than 15 percent, then your mortgage will be split into two different loans, including one that covers the cost up to 15 percent of the total price which will typically have a higher interest rate and a shorter term. 


Photo: Jessica Gow/Scanpix/TT

The rest of your mortgage might be fixed rate (bunden), where the interest rate is set for a longer time of up to ten years, or it could be variable (rörlig), which means it could change as often as every three months, depending on the interest rates at the time.

A fixed rate is usually higher to begin with, but you have the stability of knowing it won’t suddenly rise if overall interest rates go up. You can also hedge your bets by splitting between the two, so that part of your mortgage is fixed rate and the other part is variable.

If you have a variable rate, it’s usually possible to overpay the mortgage. If you’re in a stable financial position with no other loans or debts, this is worth considering in order to give yourself a buffer in case your finances change in future or interest rates rise, increasing your overall total cost.

We’ve talked about ensuring your interest rates are as low as possible by shopping around, but unlike in some countries it’s not possible in Sweden to pay only the interest each year. Since 2016, there’s a law that property owners must pay off at least two percent of the total loan each year, on top of interest, until a loan reaches at least 70 percent of the value of the property, then one percent until it reaches 50 percent. That means that if you put down a 50 percent deposit, you wouldn’t need to amortise (amortera) the loan at all.

The rule that property owners have to amortise was put on hold until August 2021 due to the coronavirus crisis, but will return in September 2021.

In any case, don’t forget that in addition to your mortgage or interest rate itself, you’ll also be paying a monthly avgift (fee) to the housing association (BRF) if your apartment or house belongs to one. This is calculated separately from the mortgage as it’s a deal between you and the BRF, not you and your bank, but don’t forget to factor it in when working out the level of mortgage you can afford.

How do taxes affect this?

Here’s the good news. Property owners in Sweden are eligible for a tax deduction which means you can reclaim 30 percent of the interest payments up to a total value of 100,000 kronor per year.

You can either get this back each month, giving you extra disposable income throughout the year (this option requires you to speak to your payroll department at work) or get it returned as part of your annual tax return.

What should I keep track of in the Swedish economy?

Sweden’s central bank predicts that the repo rate (the country’s key interest rate) will remain at zero until at least 2024. Historically banks have raised their rates in line with changes from the Riksbank, so this means that mortgage rates will likely remain low for several years.

This means that choosing a variable rate may be the best option at the moment, but it depends on your own preferences. Choosing fixed long-term interest rates are a way to protect yourself against unexpected rises in interest rates. But expert economists tend to advise against opting for a fixed interest rate on your mortgage, since a variable rate means you can take advantage of a competitive market.


Photo: Aline Lessner/imagebank.sweden.se

If you’re unsure about the best option for you, it could be worth speaking to a consumer adviser. And before you take out a mortgage, you should do some calculations to ensure you’d still be able to pay off the mortgage even if interest rates were to rise. It’s possible to do this by playing around on an online mortgage calculator, or speaking to your bank if you’re confused.

As well as following developments in the Swedish economy, it’s just as important to keep up to date with any changes to the financial state of your BRF. Most BRFs have loans themselves, which are typically higher for more recently built apartments, and the higher the loan, the more vulnerable the BRF is to national changes in the interest rate. 

If the BRF is doing well financially (bringing in plenty of money from the avgift to cover its costs), your avgift should stay relatively low and you may even be given some months’ free rent. But if the BRF starts to struggle (for example, if costly renovations are required) your avgift could go up.

This is completely separate from your mortgage, since that’s a repayment plan directly between you and your bank, but it does affect your total monthly housing costs.

Did you find this useful? Do you have more questions? Let us know.

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