Swedish government set to give green light to tougher mortgage rules -sources

STOCKHOLM, Nov 28 (Reuters) - Sweden’s government is set to give the green light to a proposal from the financial watchdog to tighten mortgage repayment rules despite warnings the move could deepen recent house price falls, two sources with knowledge of the discussions said on Tuesday.

Property prices have soared over the last couple of decades and authorities are worried debt levels are a threat to the economy, despite signs the market has now peaked.

A formal decision to push ahead has not yet been taken, but two sources said the government would back the Financial Supervisory Authority’s (FSA) plan to force new borrowers who take on large debts to make bigger annual repayments.

“We need to do something about house prices. They cannot just keep rising,” one source with knowledge of the discussions said.

Prime Minister Stefan Lofven said on Nov. 22 a decision would be made within a week.

The second source said Lofven’s centre-left minority coalition did not want to undermine the FSA, which was given responsibility for financial stability in 2013.

“Since they have the mandate, they have to be given the backing to carry out their proposals,” the source said.

House prices have risen almost 40 percent in the last three years while debt levels, at around 180 percent of disposable income, are among the highest in Europe.

The International Monetary Fund and the EU Commission are among those to have called for action.

“Household debt levels ... continue to grow faster than the economy and incomes,” Markets Minister Per Bolund told reporters on Tuesday. “That is a risk to the Swedish economy.”

Opponents of the FSA’s plan say that, with house prices falling, authorities should wait before taking further steps.

House prices fell 3.0 percent in October after a 1.5 percent decline the previous month. Banking group SEB recently cut its forecast for GDP next year by 0.5 percentage points to 2.6 percent due to the slowing housing market.

Most analysts see only a modest correction in prices, but a sharp fall would have a much bigger effect on the economy.

The crown has lost nearly 4 percent of its value in the last three months, in part due to worries about the housing market.

Reporting by Johan Sennero; Writing by Simon Johnson; Editing by Catherine Evans