Finansinspektionen details amortisation plan

New Swedish mortgages originated from August must be amortised down to a LTV of 50%, under new regulation unveiled by the Swedish FSA that will be credit positive for Swedish cover pools, according to an analyst.

The Swedish FSA (Finansinspektionen, or FI) published the details of the new rules on Wednesday of last week (11 March), proposing that mortgages with a loan-to-value ratio over 70% should be repaid down by a minimum of 2% of the original loan each year, while loans with a LTV below 70% should be repaid by a minimum of 1% annually until the LTV has reached 50%.

“In FI’s opinion, an amortisation requirement is needed in Sweden,” said FI. “An amortisation requirement dampens indebtedness. Lower debt increases households’ resilience to shocks and reduces the risk of the Swedish economy being negatively affected by unforeseen events in Sweden or abroad.”

Revaluations of the property collateralising the loan may only take place every five years, FI added, or if there is a substantial change in the value of the property unrelated to the general house price trend, or if a household’s LTV increases for the first time after the new requirement has come into effect.

The proposed regulation is now being submitted for consultation before being passed on to FI’s board of directors for a final decision. If enacted, the new rules are intended to take effect from 1 August.

The requirement would lower general LTV levels for covered bonds, which, if it feeds through to cover pools, would be credit positive, according to an analyst.

Meanwhile, the European Banking Authority (EBA) earlier this month endorsed FI proposals for a partial waiver for Swedish covered bonds from certain Capital Requirements Regulation requirements.

The announcement comes after FI in February proposed an exemption for Swedish issuers from the requirements of Article 129(1)(c) of CRR, which rules that exposures to credit institutions that are used as substitute collateral for covered bonds (which are to achieve preferential treatment) must not exceed 15% of the nominal amount of the issuer’s outstanding covered bonds and be credit quality step 1 (CQS 1).

Competent authorities are able to partially waive this requirement and allow CQS 2 up to 10% of the total after consulting with the EBA. The Danish FSA received the EBA’s endorsement of such a waiver in December.

Arguing that a similar concentration problem could arise in Sweden, FI said it hoped to be able to introduce the waiver on 31 March. On 5 March, the EBA sent its opinion to FI, agreeing that a waiver would be justified.

“The application of the CQS 1 requirement may create a potential significant concentration problem in Sweden,” it said.