Swedish Regulator Drops Plan for Faster Mortgage Payments

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Sweden’s financial regulator dropped a plan to force Swedes to pay down their home loans faster after running into opposition from a key court.

The “legal status is unclear” and the “mandate needs clarifying,” the Financial Supervisory Authority said in a statement Thursday. It’s still of the “opinion that it’s necessary to put an amortization requirement in place,” the watchdog said.

The plan was opposed by the Administrative Court of Appeal of Joenkoeping and other institutions, which found deficiencies in the legal basis for the FSA to impose the requirement.

The watchdog is seeking to protect the economy from financial dangers as household debt has risen to record levels after home prices surged over the past decade. It has capped mortgage lending at 85 percent of property values and raised capital requirements for the banks. Earlier this week, the regulator said it may be necessary to raise the counter-cyclical buffer rate for lenders in June.

“The pressure increases on the government to take measures,” Torbjoern Isaksson, chief analyst at Nordea Bank AB, said in a note. Limiting tax deductions on mortgages “has been discussed but seems unlikely. Instead, the process to change the FSA’s mandate will probably be sped up.”

Seeking Talks

Finance Minister Magdalena Andersson said she would seek talks with the opposition on how to proceed, while calling on the regulator to use all the tools currently at its disposal.

“We in the government need to think about what this means,” she said after a speech in Stockholm. “It’s central that we have talks with the right-wing parties, because we need stable conditions in this area.”

The FSA said faster amortization is needed since it “increases the resilience of households to shocks and reduces the risk of the Swedish economy being negatively affected as a result of unforeseen events in Sweden or abroad.”

The regulator proposed in November that new borrowers will need to pay down their loans to at least 50 percent of the purchase price, first by making annual payments of 2 percent down to 70 percent and then payments of 1 percent.

Housing prices have soared in recent years amid a lack of supply and as low rates and population growth have fueled demand. The central bank, which dropped its focus on household debt last year to bring up inflation, cut its key rate to minus 0.25 percent last month and is buying government bonds in an effort to stimulate growth and inflation.

Riksbank Governor Stefan Ingves, who has repeatedly warned about the risks of household debt, said on Thursday that the “issue of an amortization requirement is just as urgent as before” and that it “needs to be implemented as soon as possible.”

It’s important that the regulator’s mandate is clarified and that preconditions for a requirement “are now investigated promptly,” he said.

Sweden’s banks said the decision was regrettable.

“It’s unfortunate that there will be further insecurity regarding amortization,” Johan Hansing, chief economist at the Swedish Bankers’ Association, said in an e-mailed statement.

Annika Falkengren, chief executive officer of SEB AB, said in an interview that it’s important for Sweden to develop a “sound amortization culture” and that “therefore, I think the message from the FSA today is very unfortunate.”

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