Amortisation requirement for new mortgages

New mortgages must be amortised down to 50 per cent of the value of the residential property. The amortisation requirement will apply to all new loans that are collateralised by a residential property. The property may be revalued every fifth year.

Borrowers who increase existing mortgages after 1 June to a loan-to-value ratio that exceeds 50 per cent may be offered the option of instead amortising the additional loan over a period of ten years. The rules apply to all banks and credit market companies as of 1 June 2016.

Finansinspektionen is responsible for macro-prudential policy. As part of this assignment, FI makes the assessment that an amortisation requirement is needed in Sweden. An amortisation requirement would curb indebtedness. Lower indebtedness increases the resilience of households to shocks and reduces the risk of the Swedish economy being negatively affected as a result of unforeseen events in Sweden or abroad.

New mortgages with a loan-to-value ratio above 70 per cent must be amortised by at least two per cent of the original loan amount each year. Loans that have a loan-to-value ratio below 70 per cent must be amortised by a minimum of one per cent annually until the loan-to-value ratio has reached 50 per cent.

For existing mortgages raised before 1 June 2016, additional loans may be paid either in accordance with the basic rule or over a period of ten years. The option of amortising an additional loan over a period of ten years has been added to avoid threshold effects for households with existing mortgages that are thus not subject to the amortisation requirement.

If an agreement for the purchase or production of a residential property was entered into prior to 1 June, the loans that are raised after this date to finance the purchase or production are not subject to the amortisation requirement.

The rules apply only to new mortgages. The requirement does not apply if a borrower only wishes to switch banks.

New mortgages are defined as:

  • When a borrower takes out a loan to purchase a new residential property and pledges the property as collateral for the loan.
  • When a borrower increases an existing loan collateralised by a residential property, for example to pay for repairs, and has a loan-to-value that exceeds 50 per cent.

Exceptions

  • Mortgage firms may, for a limited period of time, waive the requirement for individual households to amortise their loans if special grounds exist. Examples of such situations could be unemployment, the death of a family member or illness.
  • Mortgage firms may waive the amortisation requirement for a loan collateralised by a newly produced residential property, although for a maximum of five years. This option is only available to first-hand buyers.
  • Loans collateralised by property that is taxable as an agricultural unit are not subject to the amortisation requirement.

Revaluation of the residential property

  • The amortisation requirement is based on the market value of the residential property. The main principle is that a revaluation of the residential property that could lead to a recalculation of the loan-to-value ratio may only take place every fifth year.
  • Revaluation may also occur if there has been a substantial change in the value of the residential property for any reason other than the general house price trend – for instance following comprehensive remodelling or extension. Merely renovating a kitchen or bathroom, or adding a balcony, are, for example, not usually considered to constitute a substantial change in value.
  • For households that currently have already acquired their residential property, a revaluation of this property may occur in conjunction with the household increasing its mortgage for the first time after the amortisation requirement entered into force. After that time, the usual rules for revaluation of the residential property apply, i.e. that this may be done every fifth year, or if there has been a substantial change in value.

Regulations regarding the amortisation requirement have been sent to the Government today for approval. The regulations shall enter into force on 1 June 2016.

FI will hold a press conference at 10:00AM today. Erik Thedéen (Director General) and Per Håkansson (Chief Legal Counsel) will be present. The press conference will be held at FI's premises at Brunnsgatan 3 in Stockholm.

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