NORDEA BANK Household debt in Sweden is among Europe's highest at more than 170 percent of disposable income, prompting the International Monetary Fund (IMF) to warn it poses a threat to economic stability. Meanwhile, Swedish property prices have nearly tripled in just two decades.
Regulators have been looking at imposing tighter conditions on mortgages but the banks stepped in with their own proposals on Tuesday, a move which has won support from the Swedish Financial Supervisory Authority (FSA).
"If you can find a voluntary agreement that is good enough and comparable to what we believe needs to be done, then it is a pretty good solution," Martin Andersson, general director at the FSA told Reuters, adding that the proposal needed scrutiny.
Andersson said one advantage with a voluntary agreement over strict rules is that there would be greater scope for flexibility if households had trouble meeting their repayments in case of unemployment or long-term illness.
Andersson noted the FSA would want to be sure any self-regulation measures were followed up and complied with.
Regulators have been looking at tighter borrowing rules including limiting interest-only mortgages and speeding up repayments.
In response, the Swedish Banker's Association (SBA) set out its own proposals, including the idea that new borrowers should have to take out repayment as opposed to interest-only mortgages on all loans of more than 50 percent of the market value of a property.
That would be a substantial tightening of the existing recommendation of amortisation down to 70 percent of market value.
"Households with loan-to-value ratios around 50 percent or less will not be as nervous if the economy deteriorates and disturbances would not affect their behaviour as much", Andersson said.
Regulators are wary that too strict rules will have negative effects on Sweden's consumption-driven economy and Andersson said new rules have to be introduced carefully.
"It's easy to create the very problems you try to avoid if you go ahead too fast and too strong".
Repayment periods are still to be decided but they would likely be longer than the existing recommendations of 10-15 years, he said.
Sweden has already introduced measures over the past few years, such as an 85 percent loan-to-value cap, but household lending has remained high.
The major Swedish banks such Handelsbanken
(Additional reporting by Daniel Dickson; Editing by David Holmes and Elaine Hardcastle)
By Johan Ahlander
