Swedes face mandatory repayments

PUBLISHED : Wednesday, 09 September, 2015, 1:14am
UPDATED : Thursday, 10 September, 2015, 10:40am

Sweden's government has reached an agreement with opposition parties on a proposal that will force home owners to pay off some of the principal on new mortgage loans, in a bid to cool the housing market.

Currently, about 70 per cent of Swedish home owners have interest-only mortgages, meaning they do not pay off any of the principal of the loan they have borrowed.

The country has a household loan-to-disposable income ratio of more than 170 per cent, one of the highest in Europe, and economists have warned it needs to take steps to rein in consumer borrowing to avoid a potential crash.

The centre-left government said on Saturday it would give the country's Financial Supervisory Authority (FSA) a legal mandate to require home owners to pay down some of the principal on new mortgages.

The move, which would exclude mortgages on newly constructed homes, would take effect from May 1 next year, it said in a statement.

The FSA has previously suggested home buyers should be required to pay down 2 per cent of the principal per year on new mortgages until the loan is 70 per cent of the property value, and then pay off 1 per cent a year until the loan-value ratio is 50 per cent.

Most banks already require new mortgage borrowers to pay down the principal to some extent and have called for tougher regulation to cool the housing market.