Photographer: Mikael Sjoberg/Bloomberg

Sweden Finds It Left Some Holes in Its World-Beating Bank Rules

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There’s a startup that’s wreaking havoc in Sweden’s $380 billion mortgage market.

The Swedes have spent years building one of the world’s strictest regulatory frameworks, placing plenty of restrictions on banks. But Sweden also stands out as a champion of technological innovation, which it’s now learning comes with risks.

The startup is called Enkla. It’s a licensed online mortgage provider that offers lower interest rates than the banks overseen by Sweden’s regulator.

One of Enkla’s co-founders, Marcus Widegren, says investors buying the bonds that will finance the venture can see everything they need to know about the borrower. That includes if a customer has too many parking tickets, he said. “That can be a parameter of reckless behavior that an investor does not want.”

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Lowest Rate

Enkla's three-year mortgage rate is much lower than the other lenders' offerings

Source: Avanza data on mortgage rates

The start-up, which belongs to a company called Simplex run by Widegren’s brother, Alexander Widegren (who co-founded Enkla with Marcus), will offer three-year mortgages at 0.95 percent. For similar kinds of loans from banks, Swedes currently need to pay somewhere between 1.6 and 1.9 percent. Enkla says it will try to take business from Sweden’s fully regulated banks.

The Swedish Financial Supervisory Authority is only just catching up and says Enkla won’t need to meet the same rules that apply to banks until early 2019. More specifically, borrowers using Enkla can avoid amortization requirements introduced in Sweden in the past two years.

Less than a week after opening its doors on March 19, Enkla had “registered interest” to suggest it may take a roughly 3.5 percent chunk of Sweden’s mortgage market, according to Kapilan Pillai, an analyst at Jefferies.

Sweden’s mortgage market is dominated by four banks (Swedbank, Handelsbanken, Nordea and SEB), which control three-quarters of all home loans. A decade ago, their market share was just above 80 percent.

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Johan Torgeby, the chief executive officer at SEB, says the bank is following the transformation of the market “very closely.”

“We’ve now seen several startups with new ways of innovative funding and attracting a lot of attention,” he said. “We’ll just follow it closely and I think it’s inevitable that we’ll go this way of having a much easier way of getting a mortgage.”

Losing Share

Sweden's biggest banks are losing market share to challenger banks

Source: Statistics Sweden data as of January each year

Enkla has done a lot of groundwork to drum up interest among potential bondholders, Widegren says.

“We’ve been talking for two years to portfolio managers,” he said. “We aim to deliver higher yields at a lower risk.”

According to SEB AB, Enkla will probably have to do most of its funding in currencies other than the krona. That’s because Sweden doesn’t have a residential mortgage-backed securities market. Alternatively, it will need to look outside Sweden for investors, SEB says.



Last year, Sweden got its first mortgage fund when Stabelo started offering home loans through online bank and broker Avanza. Schibsted ASA, a Norwegian media company, has also entered the Swedish mortgage market with its Hypoteket unit. Neither company uses the covered bond market that has traditionally been the backbone of mortgage finance in Sweden and the rest of the Nordic region. Instead they rely on financing from institutional investors.

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Widegren says Enkla wants to be a “responsible disrupter.”

“In a few years we’ll be the banks’ best friends,” he said.

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