(Bloomberg) -- Swedish households may be required to pay off less on their mortgages as part of a government effort to relax rules and make it easier to buy homes.
An inquiry led by Peter Englund found that regulations designed to reduce financial stability risks can be eased without triggering market instability, according to results presented on Monday.
Current rules require mortgage lenders to pay off as much 2% of mortgages annually. The report recommended reducing that to 1% for loans that are larger than 50% of the underlying asset’s value. The report also suggested increasing the loan-to-value cap to 90%, from 85% currently.
“We believe there is room to loosen the regulation without jeopardizing financial stability,” Englund said at a news conference. “The current amortization requirement is too strict, and places too high demands on paying off loans in the first years.”
Financial Markets Minister Niklas Wykman said the government will analyze the inquiry report and plans to introduce proposals during the first half of 2025.
Swedish households have some of Europe’s highest debt-to-income ratios and the amortization requirements were introduced in the wake of the global financial crisis, amid concern over rising housing prices and debt.
As mortgage rates soared in the run up to Sweden’s 2022 elections, political parties pledged to lift rules on mandatory amortization in an effort to provide some relief to households as inflation was spiking and interest rates being raised.
Among the supporters were the Moderates of Prime Minister Ulf Kristersson, while the financial regulator and the country’s central bank spoke against any loosening.
Swedish housing prices plunged when interest rates started rising, and while the market has regained its footing this year and last, they remain below the peak levels recorded in April 2022.
Easing the rules would help first-time buyers and could also fuel limited price gains on homes, Englund said, adding that his committee found that the current rules’ effects on financial stability and households’ resilience are “fairly uncertain.”
The committee also proposed capping loans at 5.5 times households annual incomes.
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