Unlike in many countries, Swedish homeowners often never repay the full amount of money they borrow from banks or building societies – a process known as amortization – with many only paying off the interest earned.
In a move designed to stabilize the country's economy and housing bubble, financial watchdog Finansinspektionen (FI) – which sets the rules and regulations followed by mortgage brokers in Sweden – put forward a new strategy last year to make it obligatory for all house buyers to repay their mortgages in part.
Under the original plans, customers would have been asked to pay two percent of the value of their mortgage every year until they had repaid 30 percent of the loan. They would then have been required to pay at least one percent a year until they hit the 50-percent mark.
But the watchdog backtracked after an administrative court of appeal in Jönköping in southern Sweden suggested that the proposed changes were not supported by Swedish law.
"We have to conclude that the appeal court has made a different assessment. It has pointed to uncertainties in the law, making it impossible for us to push on with the amortization requirements," said FI's acting director general Martin Noréus at a press conference on Thursday.
IN PICTURES: Where to bag a Swedish bargain property
Mortgages account for 95 percent of Swedes' total debt, and borrowers currently hold a mortgage debt 3.7 times higher than their annual income. A study by Sweden's central bank in 2014 suggested that most Swedes with mortgages would die before repaying their debts.
FI said that it still took the view that mandatory mortgage repayment is needed to prevent the Swedish housing bubble from bursting and added that it would be prepared to carry out the changes if directed by the government and parliament.
"If we get a mandate we would be able to resume the work again fairly quickly. We're in full swing now and had been planning to introduce it in August," said Noréus.
Acting FI director Martin Noréus speaking to Swedish media on Thursday. Photo: Jessica Gow/TT
Sweden has seen an unusually active property market this spring, with many customers attempting to buy and sell homes quickly ahead of the proposed rules coming into force.
Mortgage chief Michael Skytt of banking giant Nordea welcomed Thursday's announcement and predicted it would help stem potential panic purchases on the market.
"What we mainly have been against is that we would have had this quick introduction of the amortization demand. We'll have more time to adapt now and our customers won't rush to buy something before August 1st," he said.