Mortgages must be amortised again

The rules on amortisation go into effect as normal again after 31 August. The temporary exemption that Finansinspektionen (FI) introduced due to the exceptional uncertainty in the economy during the spring of 2020 is now ending. This means that households with high loan-to-value and debt-to-income ratios must amortise their mortgages.

Starting in 2016, the amortisation requirements were introduced in two stages. Households taking new mortgages with a loan-to-value ratio over 70 per cent must amortise two per cent of their loan every year, while households with loan-to-value ratios between 50 and 70 per cent must amortise one per cent. Households that have mortgages that are more than 4.5 times larger than their total income before tax need to amortise an additional one per cent a year.

The amortisation requirements were introduced to reduce the risks associated with households' large and rapidly rising mortgages. FI's evaluations also show that the measures have slowed the developments of new mortgagors borrowing more and the share of highly indebted households increasing too quickly. Without taking action, household debt – and home prices – would be even higher than today.

FI introduced the exemption from the amortisation requirement in April 2020 to increase households' possibilities for managing the exceptional uncertainty surrounding the Swedish economy in the wake of the pandemic. The data FI compiled through the summer of 2021 from the eight largest mortgage banks shows that approximately 270,000 mortgages were granted exemption from amortisation payments. FI's mortgage survey for 2020 showed that approximately one out of ten new mortgagors received a temporary exemption from the amortisation requirement.

In 2021, the recovery of the Swedish economy picked up speed, and both the stock market and the housing market have risen sharply, like in many other countries. As the economy is now recovering and household finances are strong, FI no longer considers households to have a need for a general amortisation exemption. It is therefore natural for the amortisation requirements to return to counter a continued rise in debt. It will still be possible, though, for individual households that experience a loss of income to be granted temporary exemption by their bank in accordance with the rules.

"We are no longer experiencing the exceptional situation that we experienced in 2020. The economy is recovering and the outlook on the labour market is improving. We instead see a greater risk that a continued rise in home prices will continue to increase household debt. This highlights the importance of ensuring that the amortisation requirements are in force like normal again. We are thus able to start rebuilding resilience," says Director General Erik Thedéen.

During the entire period, the banks have continued to assume in their credit assessment that households, regardless of whether they used the exemption or not, must be able to amortise in accordance with the requirements. FI's analysis also indicates that the exemption has meant that new mortgagors borrowed slightly more and purchased slightly more expensive homes than they would have otherwise. Among new mortgagors, it is primarily those with the largest loans and those with both a high loan-to-value ratio and a high debt-to-income ratio that have used the exemption.

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