News Column

Mum's the word on soaring Swedish household debt as elections near

August 25, 2014



The couple plan to buy a flat in Stockholm for five to six million Swedish crowns ($724,000 to $869,000), initially with an interest-only bank loan, among other spending plans.



Johan and Alejandra are the kind of Swedes the IMF has been warning about piling up debt to keep up with an ever-rising property market and fund a lifestyle of travel, maids and nights out.







The couple plan to buy a flat in Stockholm for five to six million Swedish crowns ($724,000 to $869,000), initially with an interest-only bank loan, among other spending plans.







"I may travel, I may want to invest in a new business," said Alejandra, who runs a cafe in the city centre.







Less than a month away from a general election, there are no votes in campaigning to stop the credit flowing, but there are fears that such Swedes could be the Achilles heel of a country that boasts a coveted AAA score from credit rating agencies Fitch and S&P.







Four in 10 mortgage borrowers in Sweden are not paying off their debt, and those that are repaying the principal do so at a rate that would on average take nearly a century.







Swedish property prices have nearly tripled in just two decades. In July, home prices rose at a double-digit pace from a year ago the first time in more than four years.







The IMF has warned financial instability in Sweden is an increasing concern and urged a comprehensive set of macroprudential measures to temper soaring mortgage debt.







Nobel Prize laureate and economist Paul Krugman has chimed in, saying Sweden probably has a significant housing bubble.







With Sweden's household debt-to-income ratio above 170 per cent among the highest in Europe and rising the issue is worrying Riksbank policymakers. Out of fear of spurring more borrowing, the central bank has kept interest rates higher than warranted by inflation, but they are nevertheless at historic lows.







The main concern is that private consumption which makes up nearly half of Swedish GDP would suffer if rates rose or property prices fell, which could spell problems for the lenders and the economy, which is only just finding its feet.








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Source: Khaleej Times (United Arab Emirates)


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