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New Swedish approach to mortgage financing: 140 years to pay off the mortgages

Thursday, 07 March 2013
The discussions on bank lending practices, interest rates and the risks of a possible housing bubble continues in Sweden as it emerge that the approach to use about 140 years to pay off mortgage is an approach that will stay.

On Thursday the Swedish Financial Supervisory Authority (FI) presented its annual mortgage survey. It shows that policies that limit how much banks can lend in relation to the property value continue to work, and that few households now have mortgages beyond 85 percent of the property's value.

According to Swedish daily, Dagens Nyeheter, households with large mortgages have become better at paying off their loans, and nine out of ten households with housing loans to value ratio (LTV) above 75 percent pay now in instalments.

Many instalments give some amount of liberty but for those with LTV below 75 percent, the trend is reversed. They repay their loans at lower levels. Only four out of ten repay their loans at all. On average, it takes the current repayment rate up till 140 years for these households to get rid of their mortgage, a stress test shows according Swedish business daily, Dagens Industri.

It follows that if house prices in Sweden would fall by 15 percent, then approximately 11 percent of households will be left with a mortgage that is higher than the property's value.
FI will on the basis of the results of mortgage survey together with the Central Bank will analyze the long-term effects of the Swedish household debt level.
by Team

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