Erik Thedéen at the Committee on Finance: Amortisation requirements and mortgage caps have safeguarded household resilience and served the Swedish economy well

Reduced risks, but considerable uncertainty

Mr Thedéen began by providing an overview of the financial stability situation. He noted that while the risks have diminished in the short term, uncertainty remains high. This is particularly true of global economic developments, where weak public finances in many countries and major geopolitical risks are creating uncertainty. The cyber threat also remains significant and is amplified by the heightened geopolitical risks.

Macroprudential measures should be long-term and sustainable

History has shown that large and rapidly growing debts can increase the likelihood of financial crises and amplify economic downturns. Mr Thedéen noted that the current measures were introduced in an environment where mortgages and housing prices were growing rapidly. In the past, banks have also competed by offering easier credit terms, such as interest-only mortgages and waived top-up loans.

The amortisation requirement and the mortgage cap have safeguarded the resilience of households and they counteract unfair competition for mortgage customers. Although the economic situation is different today, Mr Thedéen stressed that macroprudential measures should be long-term and sustainable.

“I believe that households are more resilient with amortisation requirements and mortgage caps than they would have been without them, and relaxing credit rules too much risks reversing this trend. There is a risk that the Inquiry's proposals could push up housing prices, increase household debt and make households more vulnerable to shocks.”

Making it easier to borrow will not solve housing market challenges

Mr Thedéen went on to say that it is healthy to regularly evaluate existing measures as knowledge in this field develops. While macroprudential measures have had the intended effect on household risk-taking, as with all regulation, they can also have negative side effects. One obstacle to analysing potential costs is the lack of detailed data on household assets and liabilities. Given the lack of knowledge, it is important to apply a precautionary principle. He emphasised that the Riksbank will return with an overall assessment when the Government submits a proposal for consultation regarding the Inquiry’s proposals. 

Mr Thedéen summarised by emphasising that directing more debt-financed purchasing power towards a housing market characterised by several supply problems is not a long-term sustainable solution. The aim is to create a better functioning housing market, both for rented and owned housing, and thus better conditions for long-term sustainable debt development in the household sector.

“What is needed is a broad review of housing policy and tax policy to improve the balance between supply and demand in the housing market. “Just making it easier to borrow will not solve long-term housing market challenges,” concluded Mr Thedéen.