New mortgage holders must pay their mortgages down to a 50 per cent loan-to-value ratio. The amortisation requirement will apply to all new loans granted that are collateralised by a home, as of 1 August 2015. Properties may be revalued every fifth year. The rules will apply to all banks and credit market companies. This is proposed by Finansinspektionen (FI).
In FI’s opinion, an amortisation requirement is needed in Sweden. An amortisation requirement dampens indebtedness. Lower debt increase household´s resilience to shocks and reduce the risk of the Swedish economy being negatively affected by unforeseen events in Sweden or abroad.
FI therefore proposes that new mortgages with a loan-to-value ratio over 70 per cent shall be repaid down by a minimum of 2 per cent of the original loan each year. Loans that have a loan-to-value ratio below 70 per cent shall be paid down by a minimum of 1 per cent annually until the loan-to-value ratio has reached 50 per cent.
The rules only apply to new mortgages. The requirement does not apply if a borrower only switches banks.
New mortgages are defined as follows
- When a borrower takes out a loan to purchase a new home and pledges the home as collateral for the loan.
- When a borrower takes out a new, or extends an existing, loan that is collateralised by the home, e.g. to pay for repairs. The amortisation requirement only applies to the extended loan which is to be paid down until the total loan-to value ratio reaches 50 per cent, or until the new loan has been entirely repaid.
Exceptions
- Mortgage firms may, for a limited period, waive the requirement for individual households to amortise their loans if special grounds exist. Examples of such situations could be unemployment, the death of a family member or illness.
Revaluation of the property
The amortisation requirement is based on the market value of the property. The main principle is that revaluation of the property, which may form the basis for recalculating the loan-to-value ratio, may only take place every fifth year.
- Revaluation may also occur if there has been a substantial change in the value of the property for any reason other than the general house price trend – for instance following a comprehensive remodelling or extension. Merely renovating a kitchen or bathroom, or extending a balcony, are, for example, not usually considered to constitute a substantial change in value.
- For households that have already acquired their property today, any new loans will be covered by the requirement. Revaluation of the home may also occur in connection with a household increasing its loan-to-value ratio for the first time after the amortisation requirement has come into effect. After that, the usual rules for home revaluation apply, i.e. that this may be done every fifth year, or if a substantial value change has occurred.
The amortisation requirement will cover banks and credit market companies. The proposal is now being submitted for consultation, after which FI’s Board of Directors is expected to take a decision. The amortisation requirement is intended to start to apply from 1 August 2015.
FI will respond to queries from the media today at 10.00 a.m. Henrik Braconier (Chief Economist) and Per Håkansson (Chief Legal Counsel) will be present. The Q&A session will be held at FI’s premises at Brunnsgatan 3 in Stockholm.