IMF warns of Swedish housing market of an impending bubble
Thursday, 05 September 2013
The International Monetary Fund, IMF, has warned Sweden of a housing
bubble and recommends Sweden for the introduction of interest-only
loans as one of several measures to reduce risks of a housing bubble.
IMF warns that a Swedish housing bubble could cripple banks and create a financial crisis in the Nordic and Baltic countries.
The Swedish central bank, the Riksbank's forecasts of the repo rate is
to remain at low 1 percent by the end of 2014. But now the IMF is
warning for a Swedish housing bubble and recommends the establishment
of rules for interest-only loans.International Monetary Fund (IMF) warns that a Swedish housing bubble/ scancomark.com
International Monetary Fund (IMF) warns
that a Swedish housing bubble could cripple banks and create a
financial crisis in the Nordic and Baltic countries. IMF warning is
issued in a so-called Article IV report on Sweden and in a regional
report on the Nordic region.
Risks arise from high household debt, which is among the highest in
the OECD area. The problem includes banks that are large in relation to
GDP and bank financing. According to the IMF report related risks
associated with the Swedes, amortising little on the loans and the tax
system has flaws.
IMF recommends that the introduction of regulations against
interest-only loans, and see that it may be necessary to make the tax
system and gradually phase out tax benefits as interest deductions for
With bank assets above 400 percent of GDP, Sweden’s banks are among the
largest in the world relative to the size of the economy. About 85
percent of these assets are on the balance sheet of four major banks
alone, which mostly lend across the Nordic region. More than 80 percent
of the credit extended by these four banks goes to households and firms
in Denmark, Finland, Norway, and Sweden.
The IMF writes
that the factors driving high household debt remain in place, including
continuing easy access to low-amortization mortgages, very low interest
rates, strong tax preferences for housing assets, and still elevated
As a consequence, a sudden and sizeable fall in house prices could
have a flow-on effect to consumption—especially if it occurred against
a background of normalizing interest rates from their current very low
levels in Sweden and internationally in the medium term—raising
unemployment and lowering inflation further.
This would translate into pressure on banks by pushing up
non-performing loans and bank-funding costs. Given the extensive
activities of Swedish banks in Denmark, Finland, and Norway, such a
scenario would also have spillovers across the Nordic region.
by Scancomark.com Team
do you think about this article? Suggest correction or join our network!