New mortgage holders are to repay their mortgages down to 50 per cent loan-to-value (LTV). Annual repayments of at least 2 per cent will first be made on loans down to 70 per cent LTV. After that at least one per cent is to be repaid annually down to 50 per cent LTV.
Household debt poses risks for both the Swedish economy and individual households. At the same time FI's annual mortgage surveys show that households currently have larger buffers than they had prior to the introduction of the mortgage cap in 2010. Almost all new mortgage holders with an LTV of more than 75 per cent make repayments and very few households take out loans above the mortgage cap.
On the other hand, new borrowers with a lower LTV often choose to postpone amortisation. This is worrying as international experience indicates that households with an LTV of more than 40-50 per cent are inclined to cut back on other consumption when economic conditions change.
What concerns FI is thus the negative effects on the Swedish economy (the 'macroeconomic risks') that may arise if something unforeseen were to happen to households or in the wider world. This may exacerbate economic downturns and reduce economic growth.
For this reason, FI wants new mortgage holders to repay more than they currently do. This will increase their resilience to shocks and reduce the risk of a negative effect on the Swedish economy if something unforeseen happens in Sweden or abroad.
FI's regulation means that new loans are to be repaid in two steps. New mortgage holders with an LTV of 70 per cent and over will repay at least 2 per cent of their original loan each year. After that households will repay at least one per cent each year until the LTV is 50 per cent.
FI will now start the work on producing the new rules in detail. It is estimated that this will take a few months. Two crucial issues that will need to be resolved are the definitions of 'new loans' and 'temporary exceptions'. The rules will provide scope for households with temporary financial problems to suspend repayments. This could for instance be possible in situations where a member of the household becomes unemployed, sick or dies.
FI has produced the following examples of how the regulations will affect different households. All of these examples are based on an LTV of 85 per cent: