Individually tailored amortisation plan

SUMMARY

Indebtedness among Swedish households is high and mortgages represent the largest portion of this debt. The high level of debt entails risks for individual households and makes financial stability more vulnerable. Over the past decade, amortisation among households has decreased at the same time as unamortised loans have become more common. Finansinspektionen's (FI's) mortgage survey shows, however, that amortisation behaviour among households with large loans in relation to the value of their homes has improved since the implementation of the mortgage cap.

FI has received an assignment from the Government to strengthen the foundation of a healthy amortisation culture. According to the assignment, FI should investigate what is needed for an appropriate regulation that would require mortgage firms to suggest an individually tailored amortisation plan to mortgage customers or existing customers who increase their loans.

As a supplement to the mortgage cap and to promote a healthy amortisation culture, FI proposes that the mortgage firms should suggest and motivate to the consumer one individually tailored amortisation plan. The final amortisation plan should be preceded by a discussion between the mortgage company and the borrower about amortisation. This discussion should include a number of amortisation alternatives. Both the suggested amortisation plan and the alternatives should be described using simple calculations. The mortgage firm's final suggested amortisation plan should be in the best long-term interests of the consumer. FI wants to use this approach to increase consumer awareness of and knowledge about the importance of amortisation and thereby promote sound, stable financial markets.

FI can implement a regulation requiring mortgage firms to prepare individual amortisation plans through regulations pursuant to the "sound business practices" provision in the Banking and Financing Business Act. The main value of the proposal is that consumers as a whole receive better information about amortisation and a better framework for planning their future finances. This primarily promotes healthy, stable financial markets. One condition, however, is that the Consumer Credit Act must be amended. The timeframe for implementing the proposal is therefore ultimately dependent on the Government's plans for implementing necessary amendments to the Consumer Credit Act.

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