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Price hike for new mortgages in Sweden

If you're planning to get on the property ladder in Sweden, beware that mortgages are about to get more expensive.

Published: 11 November 2014 15:51 CET

Price hike for new mortgages in Sweden

New homeowners face rising costs in Sweden. Photo: Stefan Holm

New borrowers will soon be expected to pay off at least half their mortgage.

First, customers will be asked to pay two percent of the value of their mortgage every year until they have repaid 30 percent of the loan. They will then be required to pay at least one percent a year until they have hit the 50-percent mark.

This is in contrast to many current interest-only mortgage deals, which limit customers' outgoings for the first few years.

The new strategy has been put forward by Sweden's financial watchdog Finasinspektionen (FI) which sets the rules and regulations followed by mortgage brokers in Sweden.

FI's Director General Martin Andersson said on Tuesday that the move was designed to help stabilize the country's economy.

Falling interest rates and tax cuts have fuelled a credit boom in Sweden. A shortage of housing for both renters and potential owners has pushed prices up in recent years.

"It is dangerous for an economy to be too far in debt," he told news agency TT.

He said that the changes were designed to avoid financial problems in the future and that people should not be too alarmed or worried.

Some exceptions will be made if customers are unable to meet their mortgage repayments because of sickness or unexpected unemployment.

On average, Swedes with mortgages hold a debt 3.7 times higher than their annual income.

A study by Sweden's central bank recently suggested that most Swedes with mortgages would die before repaying their debts.

But besides mortgages, which account for 95 percent of their debt, Swedes are not big borrowers.

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How to protect your Swedish savings when the stock market tumbles

Stock market volatility can be unsettling, especially when it hits close to home.

On Monday, the Stockholm stock exchange mirrored global market turmoil, with the OMXS index dropping 4.8 percent in morning trading. By 11 am, there was a slight recovery, but the index remained 2.6 percent down.

READ MORE: Stockholm stock exchange opens in the red amid global market jitters

Big names in Swedish industry weren’t spared: Boliden, a major mining company, dropped 3 percent, defence giant Saab fell 1.5 percent, and engineering firm Sandvik declined by 2.6 percent. In the banking sector, SEB took a 2.4 percent hit, while Swedbank dropped 3.6 percent.

This turbulence in the Swedish market came after significant drops in Japan’s Nikkei 225 index, which experienced its most significant one-day fall since the 1987 Black Monday Crash, and similar declines in markets across South Korea, Frankfurt, London, and anticipated losses on Wall Street.

In these uncertain times, many Swedish consumers with money invested in the market wonder whether they should do something to safeguard their savings.

Avoid impulsive decisions, expert warns

Stock market volatility can raise concerns about the safety of your savings, but according to SEB household economist Américo Fernández, there’s no need to panic.

“Should they be worried? I mean, no. I would say that this is how the stock market works: there’s a lot of uncertainty and risk connected,” he told The Local.

“When you have savings on the global stock exchanges, this will happen, especially when we’ve had at least six months of really, really good returns – maybe even too good. Then, this is a little bit expected.

“But of course, it’s always dramatic when we have such developments in the stock market in just one or two days.”

Slow and steady wins the (investment) race

For those wondering how to protect themselves against such crashes, Fernández emphasised a consistent and steady approach to investing.

“The most common thing, the best strategy for the broad masses, is to save on a monthly basis. And this is what many Swedes do; our surveys show that 9 out of 10 Swedes save on the stock market every month. This is precisely what you should do: invest in a mutual fund, which is quite common in Sweden,” he said.

“In circumstances such as these, you buy more at a lower price, instead of timing the stock market, which is almost impossible, continue your monthly investments through mutual funds. That’s a good way of diversifying your portfolio.”

READ ALSO: Will the krona’s decline stop Riksbank from cutting rates?

Ignore the alarmist headlines

The SEB household economist also advised against reacting hastily to alarming headlines.

“Another thing that households should be aware of is that when you see alarming headlines, you should sit and calmly ride the wave out.

“It’s understandable that a lot of people are affected by herd mentality when we have these negative headlines. Everyone, but especially households with tiny savings, acts and sells, and then they buy again when the headlines are positive, when the stock exchange is at high levels…

“That is the opposite of what you should do. Try to neglect these things and be cool in these circumstances, even though it seems bad and hurts your wallet. However, if it hurts your wallet too much, that might be a signal that you have too much money in the stock market (laughs), which can be common for younger investors. Although they have had it pretty good recently,” he noted.

This advice is not only applicable to Sweden but also relevant across Scandinavia, according to Fernández.

“I think it’s applicable. Across Scandinavia, all Nordic countries save a lot of money on the stock exchange, partially because the pension system isn’t fully funded by the government,” he said.

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