An amortization requirement for mortgage loans now seems to be a reality, but at the same time comments from different directions will not suffice. Sunrise Bank Manager Stella Ingives himself says that these measures are too small to have any proper effect and that, for example, one would need to reduce interest deductions and a debt ceiling for mortgage borrowers.
It has previously been a matter of a mortgage repayment requirement, that is, all new mortgages would come together with a requirement that they be repaid down to a specific level and at a certain rate every year until this level. The claim was discussed because there is a great concern that Swedes’ indebtedness is far too high and all the risks associated with this. Today, many people do not repay their mortgages at all.
When it was relevant earlier, the proposal was stopped, but now the government and the opposition have concluded that they should allow Finansinspektionen to impose such an amortization requirement on new mortgages. The proposal therefore means that it becomes a reality of the requirement that one must repay his mortgage.
The very point of introducing such a requirement is, as I said, that one wants to try to reduce the risk that Swedes’ high indebtedness will cause problems for the country’s economy. This would create greater stability and reduce the risk of a financial crisis. However, it seems that many people do not think that just having an amortization requirement is enough for it to have any real effect. Other measures are also discussed.
Stella Ingives himself goes out and says that a mortgage repayment requirement is not enough. He seems to think that such a requirement is good but that it would in no way be of any great benefit if there were no other measures.
He suggests, for example, that the interest deductions be halved from 30% to 15%, which would obviously affect everyone who has a mortgage. The interest deduction means that you are allowed to deduct the tax for 30% of the mortgage rate itself and this of course saves some money each year. This applies to anyone who has a loan but it is mainly for mortgage loans there will be some larger sums.
The next proposal is to set a debt ceiling for mortgage borrowers, which would mean that you can, as a maximum, borrow a certain amount over their disposable income (ie income after tax). Ingives believes that the debt ceiling would be at 400% and that would mean that one should not have debts that exceed four years of income after tax is deducted, but contributions are included.
The latter proposal is a rather tough proposal and this means that many may have problems borrowing for their home. This is especially true for young people who want to buy housing and need a loan and also especially in larger cities where housing is generally more expensive. According to a survey by the Riksbank last summer, it was found that about four out of ten new borrowers would be affected by a debt ceiling of this kind and in the big cities, six out of ten were affected.
The problem with a debt ceiling of this kind is that you are pretty much limited in terms of how much money you can borrow. Even if you have a sensible economy and stable income, you are only hampered by being able to borrow up to four annual income after tax. If you want to buy a home in a larger city, the price per square meter can be very high and there are immediately very many people prevented from buying with such a debt ceiling. In the same way, it applies to people with slightly lower incomes, for example young people.
I can agree with Stella Ingives that it may not be enough just to introduce an amortization requirement on mortgages and believe that it will inhibit our debt in some major way. Lowering the interest deduction can probably be a good way to start.
First, it is a measure that affects all mortgages, both new and old. I think there is a lot of talk about requirements for all new mortgages going forward, but hardly anyone is discussing measures for all those who already have mortgages now. There are very large debts in the form of mortgages already, and not trying to take measures that also affect existing mortgages feels a bit strange. Reducing the interest deduction would, as I said, also affect old borrowers who avoid repaying their loans.
Of course, but also disadvantages that strike particularly hard against some. Ingives talks about the fact that there may be alternatives when it comes to the debt ceiling, and that the Riksbank, for example, has a proposal where it is set at 600% instead of 400%. This would clearly provide more leeway for many, and only about 12% of all new borrowers and about 20% of those who want to buy housing in big cities are affected.
The very point that Ingives and others want to make may not be that it is precisely these measures that are a must, but more that one wants to make clear that more than just an amortization requirement is required to secure the Swedes’ debts in the future. Many different measures are needed in a larger package, for example with a reduced tax deduction and other things that help to reduce debt. Exactly what the measures will be or what amounts and limits are set is something that needs to be discussed.