September 5, 2015 / 2:01 PM / 4 years ago

Sweden plans mandatory mortgage repayment to cool housing market

STOCKHOLM, Sept 5 (Reuters) - Sweden’s government has reached an agreement with opposition parties on a proposal that will force home owners to pay off some of the principal on new mortgage loans, in a move aimed at cooling the country’s housing market.

Currently, around 70 percent of Swedish home owners have interest-only mortgages, meaning they do not pay off any of the principal of the loan they have borrowed.

The country has a household loan-to-disposable income ratio of more than 170 percent, one of the highest in Europe, and economists have warned it needs to take steps to rein in consumer borrowing to avoid a potential crash.

The centre-left government said on Saturday it would give the country’s Financial Supervisory Authority (FSA) a legal mandate to require home owners to pay down some of the principal on new mortgages.

The move, which would exclude mortgages on newly constructed homes, would take effect from May 1 next year, it said in a statement.

The FSA has previously suggested home buyers should be required to pay down 2 percent of the principal per year on new mortgages until the loan is 70 percent of the property value, and then pay off 1 percent a year until the loan/value ratio is 50 percent.

Most banks already require new mortgage borrowers to pay down the principal to some extent and have called for tougher regulation to cool the housing market. (Reporting by Sven Nordenstam; Editing by Mark Potter)

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