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EXPLAINED: Will Sweden’s new ‘help to buy’ scheme benefit foreign nationals?

Sweden's government has announced plans to bring in a new "help to buy" loan for first time property buyers. Here's how it might help foreigners living in the country.

A sign invites potential buyers to a viewing of a property in Sweden.
A sign invites potential buyers to a viewing of a property in Sweden. Photo: Tomas Oneborg/SvD/TT

What is the new loan proposed by the government? 

The new startlån, or “help-to-buy” loan for first-time-buyers is a loan of up to 500,000 kronor, according to a press release issued on Monday.

The loan will be provided by banks or mortgage companies, but guaranteed by the Swedish National Board of Housing and Planning, Sweden’s state housing agency. 

Couples will be able to receive a maximum of 250,000 kronor each, as will single people without children. Single people with children will be eligible for the maximum startlån of 500,000 kronor. 

The guarantee would allow banks or mortgage companies to loan out up to 95 percent of the value of a property to first-time buyers, rather than the 85 percent maximum allowed under a cap set in 2010. 

A proposal for the loan was presented to Sweden’s housing minister, Johan Danielsson, by the report’s author Eva Nordström.

Nordström was appointed on December 3rd, 2020 to lead an investigation into measures which might make it easier for first-time buyers to purchase a home. 

The proposal is now being sent out for consultation. After the last responses come in by August 26th, the government will draw up a proposal to be sent to parliament. 

Who is eligible for the new “help-to-buy” loan? 

Nordström argues that the loan should be available to all first-time buyers of houses in Sweden, and not just to young people, as some have suggested.

She argues limiting it to young people would leave out other groups priced out of the housing market, such as refugees and other recent immigrants to Sweden, and others who have lived in rental apartments for a long time and wish to own their own property. 

“People who are new in Sweden have a similar situation as young adults, particularly if they have come as refugees,” she writes.

“Like young people, the group has frequently not had the possibility to buy a home earlier on the Swedish market at a time when the entry price was lower.” 

In the scheme, she proposes that the category of “first time buyer” should include everyone living in Sweden who has not owned a property in the country in the past ten years. Those who have owned properties in other countries should still be eligible, she proposes, a it will, in practice, be too difficult to check property ownership outside of Sweden.  

She argues that everyone who has a personal identity number, or personnummer, and who is folkbokförd or “resident” in Sweden should be eligible for the startlån, as these are the only requirements typically made by Swedish mortgage providers. 

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How will the scheme help first-time buyers? 

Nordström estimates that the scheme will reduce the amount of time it takes to save up the cash needed to take out a mortgage by about two thirds. She argues that it is not reasonable for people to have to save up for more than five years to build up sufficient cash to take out a mortgage. 

Won’t the scheme simply push up prices and add to first time buyers’ debt? 

That’s what Sweden’s tenants rights organisation, Hyresgästföreningen, argues is the evidence from other countries which have tried similar schemes. 

In a press release, it argued that similar schemes in Norway, Australia, the UK and Canada, had tended to simply push up the prices of housing, benefitting building firms, but not first-time buyers. 

“All experience shows that if you give people more money in a market, then prices just go up and the threshold is only further increased,” the organisation wrote

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PROPERTY

EXPLAINED: Will Swedish housing prices plummet as interest rates rise?

The Swedish financial supervisory authority warned on Wednesday that rising interest rates could lead to house prices falling "quite sharply". How likely is it that this will happen?

EXPLAINED: Will Swedish housing prices plummet as interest rates rise?

What financial circumstances might make it difficult for borrowers to repay loans?

With an increase in the cost of living, including rising interest rates and rising electricity prices, there are plenty of circumstances that may make it difficult for borrowers – especially those holding large debts in relation to their income – to repay their mortgages.

Households with large debts are therefore more sensitive to an increase in interest rates, according to the Swedish financial supervisory authority, known in Swedish as Finansinspektionen (FI).

The agency published its annual Swedish Mortgage Market report on Wednesday.

“Large debts also mean a higher sensitivity if you were to suffer unemployment during an extensive recession,” said Henrik Braconier, the authority’s chief economist.

Other factors that could stretch borrowers’ finances include rising energy prices, higher food prices, and growing inflation.

“Apples, oranges, tomatoes have gone up by 30 percent,” said Américo Fernández, a household economist at SEB. “Wheat is coming from Ukraine and it’s getting harder and harder to get hold of.”

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Will homeowners become unable to repay their mortgage loans?

Not according to Fernández.

“One of the last things Swedish households will fail to make their payments on is their mortgage and their houses,” he said. “They would rather decrease their spending on vacations abroad, or restaurants.”

The FI report noted that most new mortgages include margins that allow for fluctuations in the borrower’s finances. This means that mortgage holders have a cushion that allows them to handle financial changes.

“Our stress test shows that they can handle increases in the interest rate and also loss of income,” said Magnus Karlsson, FI’s director of macroanalysis. “New mortgages have margins in them calculating discretionary income, and will be able to absorb increases in interest rates and loss of income.”

SEB foresees an interest rise of up to three percent over the next two years, Fernández said,an increase that can be absorbed by most households.

Both Fernández and Karlsson agreed that if homeowners have to cut back on spending, those cuts will not come from debt repayment, but from their disposable income – the money they might ordinarily spend on entertainment, eating out, or travelling.

So while household spending may have to change, financial stability is not at stake for most households.

What’s going on with the housing market?

Right now, a record number of mortgage-holders have loans that are worth more than 4.5 times their income. This year, more than 14 percent of new mortgagors took on such large loans, compared to 6.3 percent last year.

A “low interest rate, increase in housing prices, increase in disposable real income and a housing market that is not functioning well” are all factors in the large debts that homeowners have incurred today, Karlsson argued.

Fernández noted that there is an imbalance between the low supply of housing and the high demand for housing, which is in part responsible for the high housing prices we see today.

He said a decrease in price of a few percentage points would not be surprising: “We’re coming from two years of exaggerated prices.”

Will housing prices begin to decrease after two years of increasing prices?

Calculations for three different scenarios tested by FI show that housing prices will decrease, Karlsson said.

While the agency does not predict housing prices, its report shows that under three different scenarios – the first an increase in mortgage interest rate, the second an increase in energy prices, and the third a combination of the first two with a reversal to pre-pandemic housing preferences – prices will decrease.

The Local Sweden reported last year about increasing housing costs in Sweden, spurred on in part by a desire for bigger homes further away from urban areas during the COVID-19 pandemic.

Fernández called the two years of increasing housing costs “surprising.”

“10-12 percent two years in a row, that’s historical in these uncertain times,” he said, noting that prices were still increasing in figures for March this year.

What sorts of housing will see the largest price decrease?

The FI report also included various scenarios of how the price of different types of housing may fluctuate based on changes in the interest rate.

One scenario assumed a 1 percent increase in interest rates this year and a 0.5 percent increase next year, and predicted that while the price of apartments owned in a cooperative – called bostadsrätter – would fall only slightly, the price of detached houses would fall by 10 percent.

Another calculation that accounted for rising electricity prices and a decline in new housing purchases found that the price of bostadsrätter and detached houses risked falling by an average of 30 percent.

Is there a plan to let borrowers end their mortgage terms early?

“We believe it needs to be simpler and more inexpensive for households to repay their mortgages early,” FI Director General Erik Thedéen is quoted as saying in a press release published by the agency on Wednesday.

To that end, Thedéen said at a press conference that the agency had sent a request to the government to change the calculation model for how banks are compensated when mortgages are terminated early.

“When you terminate a loan agreement and the bank incurs costs, it must be reimbursed,” Thedéen said. “But at present the banks are overcompensated, that is what our calculations show. If the government follows our line and changes the model and follows our line, then the banks must simply adapt.”

When asked about the likelihood of this request being granted, FI recommended reaching out to the Ministry of Justice for comment.

What does this mean for foreigners in Sweden?

If you’re already a mortgage holder, then as Karlsson and Fernández assured, mortgage calculations include a cushion that allow for changes in your financial circumstances.

If homeownership is in your future, housing prices may begin to decrease in the near future, so it’s worth keeping an eye on your local real estate listings.

By Shandana Mufti

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