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Swedish household debts at record level – Question if this is sustainable and for how long

Friday, 23 December 2011
Never before have had Swedish households had such large debts to the banks as today. Household debts have increased dramatically since the mid-1990s. Economist and international observers are concerned about this and one question stands out as to if this growth in house hold debts is sustainable and if so for how long?

More and more households are taking more and more bank loans. The households that have loans on their homes now have a bank debt of more than Skr1.4 million on average and this figure is rising all the time.

Total household debt now in Sweden is in excess of 160 percent of disposable income, which is a historic level. In the year 2000, the level was at least stable at 100 percent.

“Sweden has the fastest growth rate of mortgages in Europe. Growth is also very high in crisis countries such as Spain and Ireland,” says Bengt Hansson, an analyst at the Swedish National Housing Credit Guarantee Board, which was commissioned by the government to analyze the Swedish housing market.


He has since the end of 2008 warned that the housing market is overvalued, leading to the banks granting excessive mortgages. One third of all mortgages are more than 80 percent of the purchase price, according to the mortgage survey carried out by the Swedish FSA presented the 2010,  12 percent were above 90 percent.

The Authority notes that this means that more households are extremely vulnerable to problems in the world or in their own economy. It is also why the so-called mortgage ceiling of 85 percent was introduced.

“We are worried about a trend towards increasingly high leverage and more and more over-indebted households. Many lack any margins in their domestic economies,” says Malin Omberg, Director of Analysis at the Swedish FSA.

Many residents take in more debts on the assumption that housing prices will only continue to rise. Probably based on various media analysis which focuses on the Swedish housing market where the believe is that house prices will continue to rise.

Should something happens and then the price start falling and then those with these huge debts can’t sell their houses again, there will be intense problems.

The Swedish central bank the Riksbank had been working hard to try and stem the house price growth by cooling the market with growing increases in interest rates. But as can be seen now, international economic situation means that interest rates have to start coning down again.
Denmark went through a situation like this and at this moment the Danish housing market is not a good case study. Will Sweden follow suit towards the Danish route is a matter of wait and see.
By Scancomark.se Team

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