Housing `Distress' Has Sweden's SBAB Looking at Loan Tightening

  • Says could tighten mortgage loan-to-income cap further
  • Bank says outlook is for housing prices to stabilize

Sweden’s state-owned mortgage lender is prepared to again scale back the risk it takes in the nation’s housing market amid soaring prices.

SBAB is looking at several potential measures, including further lowering the amount it lendsagainst a borrower’s annual income amid signs of a “distressing” housing market situation, Chief Executive Officer Klas Danielsson said in an interview in Stockholm.

“That could become necessary -- we may well change them if the market continues to develop in a way where we feel need to take action,” he said. The bank last summer capped loans at 6.5 times income and then in the autumn tightened it to 6 times.

Banks are now acting alone to reduce risks in the real estate market as record low interest rates and a housing shortage propel home prices higher. The government and the financial regulator have so far been slow in enacting stricter rules amid legal challenges and a reluctance to burden consumers.

The nation’s central bank has said urgent measures are needed to ensure financial stability after it lowered its main rate far below zero in an effort to revive inflation.

SBAB last year started requiring clients to amortize debt exceeding 70 percent of property values, ahead of the regulator’s new amortization rules that will come into force this June after significant delays.

There are also other measures SBAB could take in addition to the loan-to-income limit and stricter amortization, Danielsson said, without specifying further.

While SBAB’s market share rose 0.5 percentage point to 7.75 percent in the 11 months through November, Danielsson said the bank would be prepared to give some of it up.

“You have to be willing to lose market share if you see risks in the market that you’re not willing to take but we’re not at that stage yet,” he said.

According to Danielsson, housing prices are likely to stabilize in 2016 as amortization is tightened and as uncertainty on future capital requirements affects credit supply.

“There are many factors that indicate that it may be a bit harder to get a loan and there will also be a little bit less money to borrow because of the new capital requirements, but on the other hand, there’s still very high demand,” Danielsson said. “I would still be very, very surprised if prices continue to soar, but we have been wrong before.”

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