2010-05-05
Finansinspektionen is proposing General Guidelines for credit institutions that issue loans using residential real property as collateral (mortgages). The Guidelines stipulate that the total loan should not exceed 85 per cent of the market value of the property when the loan is issued.
In Sweden, the households' debts are dominated by loans for housing purposes. Excessive indebtedness makes borrowers vulnerable to a situation in which real estate prices decline and the borrower simultaneously is compelled to sell his or her home.
The purpose of the General Guidelines is to stem an unsound trend in the credit market where credit institutions would use ever-increasing loan-to-value ratios to compete. There is a risk that such a development will expose consumers to unacceptable risks and eventually damage the confidence in the credit market as a whole.
The limitation applies when issuing new loans or increasing existing loans using residential property as collateral. Renegotiation of existing loans or replacing loans that have previously been issued by another credit institution are not covered by the Guidelines, as long as the amount of the loan is not increased.
The General Guidelines are proposed to enter into force on 1 October 2010.
