The news that has dominated this industry in recent days is that the Swedish Financial Supervisory Authority wants to introduce a repayment requirement for new mortgages. The idea is that new loans should be repaid by 2% each year until they are down to 70% and then after that with 1% until they are at 50%. After this there should be no demand for amortization anymore.
There are many people in the country who are much better suited than me to comment on how this will affect things. Then one should clearly say that these comments tend to be speculation as there are few things that are certain about the future. Personally, I can only think of one thing and that is that time passes, we hardly know anything more than that.
But now back to this new requirement. If someone has a loan of USD 2 million, this means that USD 40,000 will be amortized each year until they reach 70%. This should be about 7 ½ years, since most have a loan-to-value ratio of 85%. The next 20 years will thus be USD 20,000 amortized each year. Thus, for the first time, it would be USD 3,333 a month to be amortized, which then goes down to USD 1,666.
Certainly this can create problems for especially young people who are going to buy housing as they may not be able to borrow 2 million but instead have to settle for a lower loan. But as I have written many times before, I do not consider it a right to buy a much too expensive home, but the right should only be to buy something you really can afford.
For me it is also quite obvious that you pay back a loan that you take. When I took out my home loan myself, I had no thoughts whatsoever other than that I would repay. To trust that the home holds the value until the day you sell, I think is a very bad tactic since you can never know what is happening. My usual example of this is a not too large society where there is a large industry that employs many local residents. What would happen to housing prices if this company shut down all of a sudden?
So for me it is a question how to look at this with loans basically. So I think they should be repaid as simple as that. Göran Persson and I may not have shared political opinions but the first part of the title of his book I think is really good “Whoever is in debt is not free”. For me, this with freedom is very important and then it is not very good to owe the bank a lot of money.
When I bought my house I did this myself and even though I got a good price, the house costs went down quite a bit after that. I also got to invest basically all my saved money to partly avoid top loans and then buy bed, plates, kitchen tables and everything else that you have to buy the first time you move away from home. This meant that I was in such an economic situation where I really couldn’t move if I had wished it had been a loss my finances had not managed.
Then I understand that there may be problems for some younger people who have not saved so much to enter the housing market. But their choices simply have to be guided by reality. In my municipality that is not a direct high-price municipality, prices vary between ½ million to 2 ½ million, roughly for the villas. The more expensive ones are in a larger community where there is better communication to the larger city.
Cheaper price is in a smaller community (same where I live myself) that has a mile to the larger community but equally far to the city. So it is a little better in some ways to live in the larger community but it is not so bad that you can not live in a smaller place and get a good house for a quarter of the cost. There are sacrifices like this one must be prepared to do as I think it looks the same way almost everywhere in the country. Location location location is named after all.
The introduction of these rules should have come much earlier in my opinion. It is necessary to have a good relationship with this with borrowing money and this is a step in the right direction for that. Then I suffer with those who will now have problems because of these rules. But no matter when you put in place good rules, there will be people who have problems, boring but true.