November 22, 2017 / 10:32 AM / in a year

UPDATE 1-Swedish central bank says mortgages top risk, wants govt action

(Adds analyst comment, detail, background)

STOCKHOLM, Nov 22 (Reuters) - Sweden’s central bank called on the government on Wednesday to act on proposals to tighten mortgage repayment rules, playing down worries that heavier regulation could cause a recent fall in house prices to accelerate.

Property prices in Sweden have soared over the past two decades, scarcely pausing for breath in the 2008 downturn. But a surge in building and worries over future rate increases has caused the market to stumble.

However, the central bank said prices were likely to resume their upward path, if more slowly, and said heavy mortgage debt was the greatest risk to the Swedish economy.

“The Riksbank supports Finansinspektionen’s proposal for a stricter amortisation requirement and considers it important that the Government takes a decision on this matter,” the central bank said in a statement.

Finansinspektionen (FSA) is Sweden’s financial watchdog.

“It is also important to implement measures within housing and tax policies to increase the resilience of the household sector and reduce the risks,” the central bank said.

Earlier this month, the FSA asked the government to approve a new measure forcing new borrowers who take out loans over 450 percent of their gross income to increase their mortgage repayments.

The proposal has divided opinion. Some analysts argue the government should hold off until the market stabilises, or it will risk causing a deeper fall in prices.

“A housing price fall larger than 15 percent would result in a marked dampening of economic growth and risks putting the Swedish economy in a recession,” Sweden’s biggest mortgage lender, Swedbank, said.

A big fall in prices would also affect central bank policy and delay normalizing negative rates. The Swedish crown has slipped sharply against the euro over the last few weeks, partly due to growing worry about the housing market.

Others, like the Riksbank, argue that with household debt levels among the highest in Europe and the increase outpacing income growth, further measures are needed to cool the market.

In its annual report on Sweden last week, the International Monetary Fund called on the government to reduce generous mortgage tax relief, phase out rent control and rethink property taxes, which were drastically reduced by the previous centre-right government.

Reporting by Simon Johnson, editing by Larry King

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