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What can you do if you are struggling to pay a mortgage in Sweden?

Interest rate rises are putting the squeeze on consumers in Sweden. Here's how you can get some relief if you are struggling to make your monthly mortgage payments.

What can you do if you are struggling to pay a mortgage in Sweden?
Detached houses (villor) in Enskede, Stockholm. Photo: Fredrik Sandberg/TT

How high are interest rates now? 

Sweden’s Riksbank Central Bank on September 20th announced an unexpectedly high one percent hike to the repo rate, its key interest rate, pushing the rate from September 21st to 1.75 percent. 

What difference will this make for people’s mortgage payments? 

It could be significant.

Say you have the maximum allowed 3.5m kronor loan on a house worth 4.4m, and are currently paying 2.7 percent in interest, then you are likely to be paying about 7,875 kronor a month on your interest, and about 5,860 kronor towards paying off your mortgage. 

The one percent increase will add an extra 2,917 kronor to the existing monthly payment of 13,735 kronor, taking it to 16,652 kronor. 

If the repo rate then increases to 2.5 percent, as the bank is forecasting for 2023 and 2024, the payment will rise a further 2,187 kronor to 18,839 kronor a month. 

This means that, if you take the interest payment alone, your mortgage costs will jump from 7,875 kronor to 12,979 kronor. 

What help can you get? 

Sweden’s Financial Supervisory Authority in a press release on Tuesday published a Q&A on its website to inform consumers of the possibility of getting excused the mandatory amortisation payments in Sweden. 

The authority’s chief economist Henrik Braconier also went on Sweden’s state radio broadcaster SR to encourage borrowers to ring their banks if they were struggling. 

“If it gets tight, it’s best to ring your bank and start a dialogue,” he said. “They are used to handling this sort of question. You should not be afraid to ring.” 

“A lot of households are going to find this really tough, and this is hopefully only a temporary problem, so if you have a problem as a household, you should talk with your bank. We think it’s good if people take advantage of this.” 

What is Sweden’s amorteringskrav system to reduce interest-only mortgage payments? 

Sweden in 2016 tried to lower the risk in its housing market, by bringing an end to interest-rate only mortgage payments for anyone taking out loans worth more than 50 percent of the property’s value, or borrowing more than 4.5 times their annual income. 

This means you must pay down between one percent and three percent of your loan every year, depending on how big a share of your annual income or how big a share of the value of the property you have borrowed.  

Source: Financial Inspection Authority of Sweden

If I can’t afford to pay down my mortgage, what should I do? 

According to the rules of the amorteringskrav, mortgage lenders are allowed to temporarily excuse borrowers from the requirement to pay off between one and three percent their mortgage principal — effectively the amount you have borrowed and have to pay back. 

The decision on whether to excuse a borrower is taken by banks on an individual basis, and requires only that the borrower declare a “special reason”. 

What might a “special reason” be? 

A special reason would be if a household’s economy is “significantly worsened”. The Financial Supervisory Authority suggests that this might be because a member of the household is sick or unemployed, or if household finances have been appreciably worsened by “increased costs”, such as higher electricity bills.

A “special reason” can only be something which happens after a mortgage has been granted, and it should be something which could not have been foreseen at the time the mortgage was agreed. 

The authority stresses that a rise in the repo interest rate would not normally be enough to count as a “special reason”. 

“That a household is sensitive to rate rises and is affected when the mortgage rate is increased is not in itself a “special reason”. 

It said that in recent years banks are supposed to set their mortgages so that lenders can handle interest rates of between 6 and 7 percent, considerably above the roughly 4 percent mortgage rate most borrowers will experience after the September 21 rate rise. 

However, recent rate rises, taken together with the sky high electricity prices in southern Sweden, might be enough to be excused amortisation payments. 

How much of a difference might it make only paying off the interest? 

It could make a real difference. For the household in our earlier example, it would reduce their months payments from 18,839 kronor to 12,979 kronor. 

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