November 30, 2017 / 12:02 PM / a year ago

UPDATE 1-Swedish government to introduce tighter mortgage rules

(Adds Markets Minister comment, background)

STOCKHOLM, Nov 30 (Reuters) - Sweden’s government gave the go-ahead on Thursday for its financial regulator to impose tougher mortgage-repayment rules on big borrowers, despite warnings the regulation could cause recent declines in house prices to accelerate.

Property prices have risen much more than wages over the last couple of decades and authorities have long warned high debt levels are a threat to the economy .

But prices have dipped in the past couple of months, leading some analysts to warn the government it was the wrong time to turn the screws on mortgage borrowers.

“We need to take responsibility and deal with the biggest risk that faces the Swedish economy,” Financial Markets Minister Per Bolund told a news conference.

“The Swedish economy is strong at the moment, which means we can deal with any potential short-term effects (of the measure).”

The FSA has estimated the measure, which forces new mortgage borrowers who take on loans bigger than 4.5 times their gross income to make bigger repayments, will reduce property prices by around 1.5 percent.

“This will pull down home prices further, but the effects should not be overplayed,” banking group Nordea said in a note.

The Swedish crown weakened slightly after the announcement.

Concern about real estate markets and household debt has grown across the Nordic region. Denmark has Europe’s highest level of household debt in relation to disposable income, followed closely by Norway, then Sweden, according to the OECD.

In Denmark, which only recently recovered from the last housing crash, the central bank has warned about lending standards and rising house prices.

Earlier this year, authorities in Norway imposed temporary restrictions on mortgages to help cool the housing market. They are set to run to June 2018.

Sharp falls in property markets would spill over into construction and consumption, putting a brake on growth. In Sweden, the country’s biggest lender, Swedbank, warned of the risk of recession if prices fall more than 15 percent.

Recent figures show house prices in Sweden dropped 3.0 percent in October from September and 1.5 percent in September from August.

Reporting by Stockholm Newsroom,; editing by Larry King

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