The mortgage cap and amortisation requirements have had intended effect and subdued household debt. They are slowing a scenario where new mortgagors borrow more, taking larger loans in relation to the value of the home or their income. These are the conclusions of Finansinspektionen’s (FI) evaluation of the macroprudential measures implemented in Sweden.
In the 2021 Letter of Appropriation, FI was given a mandate to carry out and report on an overall assessment of the borrower-based macroprudential measures. These include stricter capital requirements on banks, the mortgage cap, and two amortisation requirements.
In the past few years, extremely low interest rates combined with structural problems on the housing market have contributed to home prices and household debt continuing to increase faster than household income. This trend accelerated during the coronavirus pandemic.
FI's assessment however shows that the mortgage cap and the amortisation requirements have slowed this trend and in general mitigated the risks associated with household debt. These measures have meant that fewer households are taking large loans in relation to the value of their home or their income.
The measures also prevent high loan-to-value ratios and low amortisation being used as a means of competition among lenders. Overall, the measures have also had a limited and temporary impact on the housing market. For example, turnover on the market has increased slightly and the percentage of young borrowers has not fallen. FI therefore makes the overall assessment that the measures have had the intended effect. At the same time, though, FI highlights that there is a need for more detailed data on household assets and debt in order to better understand the risks association with the households.
The assessment also shows that the amortisation requirements have both subdued mortgagors' willingness to borrow and decreased some households' possibilities for borrowing. Buying a home today requires higher income, equity and debt service payments than before the measures were introduced. At the same time, higher home prices play a greater role in explaining the difficulties for some households to buy a home.
In April 2020, FI gave the banks the option of offering all mortgagors temporary exemption from the amortisation requirements in order to provide greater economic manoeuvrability during the crisis. A new analysis indicates that the exemption resulted in new mortgagors borrowing around 4 per cent more and buying homes that were approximately 1 per cent more expensive.