Swedish mortgage holders 'under most financial strain in 12 years'
People with mortgages are seeing more strain on their finances than at any time in the last 12 years, Sweden's financial stability watchdog has said in a new report, although it says that the majority of people taking out new mortgages still have some wiggle room in their personal finances.
The new report from Sweden's Financial Supervisory Authority (FI) found that the proportion of income mortgage holders were paying out in interest payment had almost tripled between 2021 and 2022, reaching 12 percent of disposable income.
"In twelve years, we haven't seen households under so much pressure as we do now," FI's General Director Daniel Barr said at a press conference announcing the report. "Pressure has increased on households and will continue to do so throughout the year."
In the report, the authority notes that Swedish households' loans had been increasing faster than their disposable income for some time, due in part to historically low interest rates and rising house prices.
However, during 2022 and the beginning of 2023, inflation rose substantially, interest rates more than doubled and house prices dropped.
In addition to this, many banks and other financial actors were now predicting a sustained period of low growth or even a recession, which would have a knock-on effect for households, not least those who bought properties in this time period.
The authority now believes that interest payments could increase to nearly 16 percent of disposable income by the end of 2023.
Number of first-time buyers increased in 2022
The analysis, based on a sample of people taking out new mortgages in early autumn 2022, showed that activity on the property market declined overall in 2022, but the number of first-time buyers increased to close to the levels seen before the pandemic in 2019.
Most of the people in the sample finalised their property purchases in the summer of 2022, or earlier.
Otherwise, the report states, the sample was similar to results seen in 2021. People taking out new mortgages bought, in general, properties of a similar price in 2022 as in 2021, with mortgages of a similar size.
The average size of the loan compared with the overall price of the property - the belåningsgrad or loan-to-value ratio - was also roughly the same in 2021 as in 2022.
The skuldkvot or debt-to-income ratio, the size of the mortgage compared to household income, was slightly lower in 2022, with a somewhat smaller number of borrowers with a debt-to-income ratio over 450 percent and a loan-to-value ratio of over 70 percent.
This may be in part due to the fact that a debt-to-income ratio over 450 percent and a loan-to value ratio over 70 percent both require borrowers to amortise an extra 1 percent of their mortgage each year, with borrowers falling into both categories having to amortise an extra 2 percent.
Average interest rate more than double previous year
The average interest rate on the mortgages taken out in the sample group was 3.1 percent, more than double the average 1.4 percent rate on mortgages in the previous year's sample. This means new mortgage holders are using a much larger proportion of their income (10 percent) to pay interest than in previous years.
This is the highest average interest rate reported since 2012.
At the same time, a much larger proportion of new mortgage holders chose variable rate mortgages than in 2021 - the largest number reported since 2016.
Those taking out new mortgages in 2022 were in general worse off already at the point they took out their mortgage compared with the same group in 2021, due chiefly to increased interest rates and prices rising in general.
This means, the report states, that many mortgage holders will need to reduce their savings or adapt their consumption to the changing economic situation.
Those who have taken out mortgages more recently will be affected to a greater extent, it adds, as they often borrow larger amounts and have less room in their personal finances to accommodate even higher inflation, higher interest rates and a loss in property value.
Individuals in financial trouble are, in some cases, able to pause the requirement to amortise their mortgages at the discretion of their bank, in what is referred to as a ventil, similar to a pressure valve.
FI is still investigating to what extent the banks are allowing customers to use this pressure valve, with a final report on this due in June 2023. It states, however, that the general picture is that the pressure valve is being used much more often than in previous years.
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The new report from Sweden's Financial Supervisory Authority (FI) found that the proportion of income mortgage holders were paying out in interest payment had almost tripled between 2021 and 2022, reaching 12 percent of disposable income.
"In twelve years, we haven't seen households under so much pressure as we do now," FI's General Director Daniel Barr said at a press conference announcing the report. "Pressure has increased on households and will continue to do so throughout the year."
In the report, the authority notes that Swedish households' loans had been increasing faster than their disposable income for some time, due in part to historically low interest rates and rising house prices.
However, during 2022 and the beginning of 2023, inflation rose substantially, interest rates more than doubled and house prices dropped.
In addition to this, many banks and other financial actors were now predicting a sustained period of low growth or even a recession, which would have a knock-on effect for households, not least those who bought properties in this time period.
The authority now believes that interest payments could increase to nearly 16 percent of disposable income by the end of 2023.
Number of first-time buyers increased in 2022
The analysis, based on a sample of people taking out new mortgages in early autumn 2022, showed that activity on the property market declined overall in 2022, but the number of first-time buyers increased to close to the levels seen before the pandemic in 2019.
Most of the people in the sample finalised their property purchases in the summer of 2022, or earlier.
Otherwise, the report states, the sample was similar to results seen in 2021. People taking out new mortgages bought, in general, properties of a similar price in 2022 as in 2021, with mortgages of a similar size.
The average size of the loan compared with the overall price of the property - the belåningsgrad or loan-to-value ratio - was also roughly the same in 2021 as in 2022.
The skuldkvot or debt-to-income ratio, the size of the mortgage compared to household income, was slightly lower in 2022, with a somewhat smaller number of borrowers with a debt-to-income ratio over 450 percent and a loan-to-value ratio of over 70 percent.
This may be in part due to the fact that a debt-to-income ratio over 450 percent and a loan-to value ratio over 70 percent both require borrowers to amortise an extra 1 percent of their mortgage each year, with borrowers falling into both categories having to amortise an extra 2 percent.
Average interest rate more than double previous year
The average interest rate on the mortgages taken out in the sample group was 3.1 percent, more than double the average 1.4 percent rate on mortgages in the previous year's sample. This means new mortgage holders are using a much larger proportion of their income (10 percent) to pay interest than in previous years.
This is the highest average interest rate reported since 2012.
At the same time, a much larger proportion of new mortgage holders chose variable rate mortgages than in 2021 - the largest number reported since 2016.
Those taking out new mortgages in 2022 were in general worse off already at the point they took out their mortgage compared with the same group in 2021, due chiefly to increased interest rates and prices rising in general.
This means, the report states, that many mortgage holders will need to reduce their savings or adapt their consumption to the changing economic situation.
Those who have taken out mortgages more recently will be affected to a greater extent, it adds, as they often borrow larger amounts and have less room in their personal finances to accommodate even higher inflation, higher interest rates and a loss in property value.
Individuals in financial trouble are, in some cases, able to pause the requirement to amortise their mortgages at the discretion of their bank, in what is referred to as a ventil, similar to a pressure valve.
FI is still investigating to what extent the banks are allowing customers to use this pressure valve, with a final report on this due in June 2023. It states, however, that the general picture is that the pressure valve is being used much more often than in previous years.
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