Household debt is not primarily a direct threat to financial stability. However, if the economy takes a turn to the worse, many households may be forced, or even choose, to reduce their consumption in order to continue to be able to pay off their loans. This could exacerbate a crisis and threaten financial stability, determines FI in a report on FI’s use of macroprudential tools.
FI has been given an assignment to develop and report on methods for evaluating macroprudential activities. The final report is to be submitted no later than 19 June 2019. FI must report the focus and priorities of its work in an interim report. FI is using this first interim report to describe the work of analysing and managing the risks associated with household debt.
Measures targeting borrowers directly are the most effective means by which to reduce the macroeconomic risks associated with household debt. The mortgage cap increases households' resilience in the face of falling house prices. The amortisation requirement reduces the proportion of highly-indebted households, which makes households less inclined to reduce their consumption heavily if economic development is seriously impaired. The capital requirements for Swedish banks are generally high and this is especially true for lending to households. This means that banks can deal with significant credit losses and continue arranging loans, even in economic downturns.
FI introduced the stricter amortisation requirement in order to further increase the resilience of the most highly leveraged households. It would have been possible to achieve an equally large suppression of new lending or reduction in the proportion of households with a high loan-to-income ratio using other measures. A reduced mortgage cap would have hit the youngest households hard. It would probably also have contributed to an even more rapid increase in unsecured lending. A loan-to-income limit could have distorted competition in the mortgage market and would also have risked a further increase in unsecured lending. The capital requirements would have needed to be raised to an unreasonable level in order to decrease the macroeconomic risks associated with household debt.