Swedish amortisation plan ‘beneficial’, could head off new regs

Oct 17th, 2014

Amortisation of new mortgage loans down to 50% of a property’s value in line with a Swedish Bankers’ Association recommendation on Tuesday of last week (7 October) would be beneficial, according to Moody’s, while an analyst suggested it could head off further binding measures from Sweden’s authorities.

RiksbankThe rating agency noted the move is from the association’s previous 70% recommendation, which Moody’s said left a large share of mortgage debt on a non-amortising, interest-only basis.

“Although the recommended pace of such repayment has not yet been determined, greater amortisation would be another step to halt the ongoing increase in household debt, a credit positive for banks and covered bonds,” it said.

Moody’s highlighted that its default expectation for a loan that equals 50% of a property’s value is just about half the default expectation for a 70% LTV borrower, “reflecting the exponential increase in the risk of high LTV loans”.

The rating agency noted that it is the latest in a series of recommendations from the Swedish Bankers’ Association (Svenska Bankföreningen) and rules from the Swedish authorities in recent years to address high household indebtedness, which it said has triggered a strong public debate.

An analyst suggested that the association is front-running a November meeting of the Swedish Financial Stability Council, which comprises the government, the Swedish FSA (Finansinspektionen), the Swedish central bank (Sveriges Riksbank), and the Swedish National Debt Office.

“Not unexpectedly, the FSA came out and welcomed the initiative,” he said. “The FSA’s director general stated that the extended industry recommendation lessened the need for a binding rule from the authorities.”

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