Sweden's opposition party pushes for lower mortgage rates
Social Democrats take lead in national election with plans to make housing more affordable
Sweden's Social Democrats are heading for a national election victory backed by housing plans that could dig the country deeper into debt.
Magdalena Andersson, the party's economic spokeswoman and the likely finance minister if the Social Democrat-led opposition prevails in this month's election, has proposed using state-owned bank SBAB to bring down mortgage rates, already at four-year lows, to make housing more affordable.
Andersson also suggested relaxing some rules designed to stem the growth in household debt, which is at a record high.
The Social Democrats' embrace of the welfare state has helped it keep a lead over the centre-right ruling coalition in polls.
With a shortage of homes and soaring prices, the banking industry, government and analysts say the proposals to further open the mortgage spigot threaten the nation's financial stability.
"We see the risk in the housing market from house prices continuing to go up," said Lee Tyrrell-Hendry, an analyst at Royal Bank of Scotland in London. "Any proposals that encourage people to borrow more, take on more debt and encourage more of a boom in the housing market are in some ways retrograde steps."
The housing shortage, a consequence of a growing population and strict regulations that stymie new construction, has caused prices to more than double since 2000. As home values have jumped, so has household borrowing. It increased 5.5 per cent in July - the most in 34 months - driven by a 5.8 per cent increase in mortgage borrowing, Statistics Sweden said.
Households with mortgages owe their creditors an average of almost four times their disposable income while the overall average debt load of Swedes is about 175 per cent.
The central bank and the International Monetary Fund have warned that soaring debt levels make the economy vulnerable to a severe shock if unemployment rises or prices collapse.
The government of Prime Minister Fredrik Reinfeldt has worked with the central bank and financial regulator to curb household debt. The Swedish Financial Supervisory Authority capped mortgages at 85 per cent of property values in 2010 and has since also raised capital requirements and mortgage risk weights for banks.
The authority is now planning to force households to start paying down their mortgage debt and is considering lowering the home-loan cap and introducing loan-income limits.