October 2, 2013 / 12:18 PM / in 4 years

Sweden's FSA says ready to force amortization if needed

STOCKHOLM (Reuters) - Sweden’s financial watchdog, one of Europe’s toughest regulators, said on Wednesday it would probably opt to push home-owners to pay down their mortgages if it had to do more to restrain housing debt.

But the Financial Supervisory Authority, which has so far focused on restraining banks from lending too much to home-buyers, said new measures such as raising their mortgage risk weights further were not currently on the agenda.

With Swedish bank assets worth four times the country’s annual economic output, the FSA has already introduced a loan-to-value limit of 85 percent on new mortgages. In May, it forced banks to increase risk weights on their mortgage books from single digits to 15 percent, more in line with European peers.

“We just did this tripling of the risk weights,” said the authority’s head, Martin Andersson. “I think we should let that play out a bit more before we start revising that figure.”

Some policymakers have suggested that risk weights should go as high as 35 percent.

Sweden is one of Europe’s strongest economies, and while its major banks made it through the debt crisis relatively unscathed, concerns over high household debt and an unabated rise in property prices have kept authorities on edge.

Still, Andersson said household lending had been largely steady in recent months, and despite a small pick-up there was currently no need to force borrowers to pay back the capital.

“We haven’t seen any need to introduce (compulsory mortgage repayment) now, so if it continues in this way we probably won’t see a need in the next couple of months either, depending on what happens in the economy,” he said at the Reuters Nordic Investment Summit.

Household lending in Sweden was up 4.8 percent in August from the previous year - lower than the double-digit rises before the 2008-2009 downturn but up slightly from earlier this year.


Forced amortization, however, would probably be the regulator’s next step should there be a resurgence in borrowing.

“If we see that things run away too quickly - even though we see and always argue that there are a lot of drawbacks with hard amortization requirements - we still think that is probably the way to tackle the development that we have seen so far, if it runs away,” he said. “We are not there yet.”

Swedes have a long history of paying only interest on their home loans. At current amortization levels, it would take Swedes on average 140 years to pay down their mortgage debts. Debts are passed down to the next generation or homes are sold to repay debts.

Authorities have been working to change that culture without hurting economic growth.

Swedish banks such as Nordea (NDA.ST), Handelsbanken (SHBa.ST) and Swedbank (SWEDa.ST) follow guidelines from the Swedish Bankers’ Association that mortgages with loan-to-values (LTV) above 75 percent should be paid off.

Swedes tend to be less disciplined below that level.

    “The basic problem is that people stop paying their amortizations at 75 percent LTV more or less,” Andersson said.

    One solution, he said, would be to force borrowers to take their principal from 75 percent down to “another level” within a “certain timespan”.

    “Of course, we won’t do any draconian things,” he said.

    He did not support the idea of 30-year mortgages, which are much more common in the United States and which the Dutch are imposing through tax incentives.

    “It doesn’t mean that it needs to be zero in 30 years,” he said. “That is probably a very efficient way to create a crisis.”

    The Swedish centre-right coalition government, which is trailing badly in polls with general elections due next September, has said amortization rules would not be on the agenda for the coming 12 months.

    Asked how much his organization was being managed by the government, Andersson said: “I‘m independent, absolutely,” though he added that the issue would be discussed with the government.

    Follow Reuters Summits on Twitter @Reuters_Summits

    Editing by Ruth Pitchford

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