Homeowner Debt at 370% in Sweden Poses Risks, Riksbank Says

Sweden’s central bank said consumers are more indebted than previously estimated, reaching 370 percent for homeowners, lending support to a majority on its board that has advocated using monetary policy to combat record borrowing in the largest Nordic economy.

“An analysis of the data shows that households in general are highly indebted in relation to their incomes –- and this applies above all to low and middle-income earners,” the Stockholm-based bank said in a report today. “It also shows that four out of ten borrowers are not reducing their debts -- and that those who are reducing them are doing so very slowly.”

The Riksbank has come under pressure to cut its main lending rate amid growing criticism it’s too preoccupied with taming debt and not doing enough to boost consumer prices. Inflation has trailed its 2 percent target for more than two years. Policy makers in April left the repo rate at 0.75 percent for a second meeting.

The bank said today that new analysis from a collection of data from the eight largest banks showed that in July 2013 the average debt ratio for Swedes was 296 percent of disposable income, for indebted individuals, and 370 percent for individuals with mortgages.

‘Broader Challenge’

Indebtedness is a “broader challenge” than previously thought, said Cecilia Skingsley, deputy governor at the Riksbank, at a Stockholm briefing. It’s a concern “that debt ratios are also high among low and middle income earners, not just among high-income earners,” she said.

The aggregate level, which also includes people without debt, was 174 percent at the end of the fourth quarter.

The study also showed that almost 25 percent of households increased their debts while 60 percent owed their creditors less from 2012 to 2013. At the current pace, consumers paying down their obligations would be debt free in 100 years, the Riksbank said.

“Swedish households’ debts have grown substantially in recent years and the Riksbank has emphasized, in various contexts, the risk this entails for both macroeconomic development and financial stability,” the bank said.

Not Enough

Private debt has almost doubled to more than 170 percent of disposable incomes since the mid-1990s and will continue to rise next year and 2016, the Riksbank forecast last month. Apartment prices have more than doubled since 2000, after climbing 7 percent in the last year.

Riksbank First Deputy Governor Kerstin af Jochnick said last month that the government isn’t doing enough to rein in borrowing. It should consider making Swedes pay down their mortgages faster, reduce tax deductions on mortgage payments and stimulate housing construction, she said.

Household debt will top the agenda at a second meeting this month of Sweden’s Financial Stability Council. The group, which met for the first time in February, is made up of representatives from the government, the Riksbank, the Financial Supervisory Authority and the National Debt Office.

Swedish banks are required to hold at least 12 percent core Tier 1 capital relative to risk-weighted assets by 2015. They may have to raise the risk weights on home loans to 25 percent this year, from 15 percent and also face a countercyclical buffer. The Swedish Bankers’ Association on March 19 told banks to force households to amortize all mortgages that exceed 70 percent of their property’s value, from a previous 75 percent.

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