New proposal for an amortization requirement

FI today sends out a proposal which requires amortization of mortgages. The proposal is that new mortgage holders must pay their mortgages down to a 50 per cent loan-to value ratio. Starting on 1 June 2016, the amortization requirement will apply to all new loans which are collateralized by a home.

"The amortization requirement is needed to reduce the risks connected with household debts and it might also contribute to a slowdown in the increase of home prices. The proposal is in general in line with the proposal that FI presented in March, but includes an exception for mortgages related to newly built homes", says Erik Thedéen Director General for FI.

FI proposes that new mortgages with a loan-to-value ratio of over 70 per cent shall be repaid by a minimum of 2 per cent of the original loan each year. Loans that have a loan-to-value ratio below 70 per cent shall be repaid by a minimum of 1 per cent annually until the loan-to-value ratio has reached 50 per cent.

The amortization requirement is only applicable to new loans, which means loans that are granted after the new regulation enters into force. Existing loans and loans that are granted before that point in time are not subject to the amortization requirement. This also applies if the existing loan is substituted for a loan in a new bank after the regulation enters into force, provided that the loan amount is not increased. Revaluation of the home can be made every five years.

The rules will apply to all banks and credit market companies.

About the regulation and the process of approval

The entering into force of the proposed regulation is conditioned on that a proposed change in Swedish law, and a proposed mandate, is decided by the Swedish Parliament. It is also necessary that the government will decide that FI shall be given the mandate to decide on the details of the amortization requirement. Since the amortization requirements may have a significant effect on households the government has to approve the regulation before it is decided

More tools are needed

FI has announced the need to be able to take further action if total household debt continues to rise rapidly, even if the amortization requirement is implemented. To be able to take action, FI´s legal powers need to be clarified. It is important that this is done promptly.

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