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PROPERTY

State warns of housing boom and bust

The National Housing Credit Guarantee Board (BKN) has warned that Sweden stands on the precipice of a house price crash. Record low interest rates and loose credit has expanded borrowing to unsustainable levels, the board argued in a new report.

State warns of housing boom and bust

The board warns in the report, published on Tuesday, that when the bubble bursts house prices in Sweden can be expected to fall by 20 percent.

In its thrice yearly housing market report, the board has warned that a “price will be paid for the bubble” and predicts that a correction can occur suddenly “or through a more gradual process of inflation eroding the value of stagnant prices.”

The board points out that since 2000 Swedes have changed their credit habits with regard to their homes.

“Households are extracting ever more capital from their homes through mortgage loans which are used to an increasing extent for investments other than housing,” the board wrote in a statement.

Since 2000, Swedish households have borrowed an average 130 billion kronor ($18 billion) against their homes per annum, with only 45 billion kronor being used for housing investments (including purchase and renovation).

Between 1975-1999 Swedish households were more inclined to not only use disposable incomes to renovate and maintain their homes, they also used income to amortize.

The board, which is a national government agency under the Ministry of Finance, warns that the change in habits combined with easy credit, which has been sustained during the credit crunch, has led to a spiralling circle of increasing debt and inflating house prices.

The report declined to forecast exactly when this bubble was due to burst but predicted that the risk it would occur in the coming years was “very high.”

Factors affecting the timing of the purported crash include “climbing interest rates or declining exports,” the board explained.

It is also observed that Sweden is not unique in recording high levels of house price inflation over the past decade, with the deregulation of credit markets in developed countries and global imbalances identified by the board as the underlying causes of asset-price rises.

The difference between Sweden and many other developed world economies is however that many other markets have experienced a correction in recent years, while Sweden has not.

“Despite a large fall in GDP in 2009, Swedish house prices climbed over the year. With the backdrop of the macroeconomic situation this development can be considered surprising,” the board observed.

The report warns that heavily indebted Swedish households are vulnerable to interest rates rises as well as asset price deflation.

Mortgage costs as a percentage of disposable income are currently at a record low 2.7 percent when comparing statistics from 1980, but leverage has increased from around 15 percent to close to 50 percent over the same period.

The National Housing Credit Board concludes that Swedish households could suffer a shock when interest rates rise only modestly.

“A normal mortgage interest rate of around 5.5 percent would make it significantly more expensive to live and motivates, according to our calculations, 20 percent lower house prices than today,” Bengt Hansson at the board told news agency TT.

The parlous state of government finances in many the EU countries is a further factor that the board warns could shift a booming market into a bust.

“Aside from a new recession interest rates could be forced up strongly in the wake of the state financial crisis which has hit many EU countries very hard,” Hansson warned.

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PROPERTY

How to ensure your French property is insured for storm damage

Storm Ciaran’s property-wrecking passage through France - with another storm forecast for the weekend - may have many people wondering how comprehensive their insurance cover is. 

How to ensure your French property is insured for storm damage

In the wake of Storm Ciaran, thousands of property owners in France are preparing insurance claims – with initial estimates of the bill for damage between €370 million and €480 million.

Home insurance is compulsory in France, whether you own the property you live in or you rent – and it must include some level of storm damage cover. 

Check also to see if your insurance provides cover in case of a declaration of a catastrophe naturelle.

The garantie tempête (storm guarantee) covers damage caused by violent winds. What constitutes a ‘violent wind’ varies from contract to contract, but there appears to be a widespread consensus of agreement on wind speeds over 100km/h.

In most insurance contracts, this covers damage caused by the storm and within the following 48 hours – so you’re covered if, for example, a tree weakened by the storm comes down within that period and damages your property.

Be aware that, while the storm guarantee automatically covers the main property, it generally only covers any secondary buildings and light constructions – such as a veranda, shed, solar panels, swimming pool or fence – if they are specifically mentioned in the contract. 

The same is true of any cars damaged by debris. A basic insurance contract might not include storm damage, so it is always worth checking.

Damage must be reported to your insurer as quickly as possible. The deadline for making declarations is usually five days after any damage is noticed. This is especially important for second home owners, who may not be at the property when the damage occurs. 

In some cases – such as in the aftermath of Storm Ciaran – insurers may extend the reporting period. But under normal circumstances, it’s five days after the damage has been discovered.

What happens next

To make a claim, the first thing to do is contact your insurer by phone or email. Your insurer will take you through the next steps, but usually you have to send in a declaration – which should include an estimate of any losses and for any repairs, with evidence where possible, such as photographs and any receipts for purchases. 

Your insurer may also request proof of wind intensity, which can be provided for example by a nearby weather station.

The insurance company may appoint an expert to come and assess the damage, so make sure to keep damaged property safe until they arrive, as well as all invoices for any urgent repair work. 

What if you’re a tenant?

If you rent your property, you must report any damage inside the accommodation to your insurer and also notify your landlord so that they can file their own claim. 

In the case of a co-propriete, you must declare damage inside the accommodation to your insurer, while the trustee sends his own declaration to the collective insurance (which sometimes covers the private areas) .

How long does it take for claims to be settled?

Payment of the compensation provided for by the “storm guarantee” depends your home insurance contract. After the insurer has estimated the amount of damage, compensation is generally paid between 10 and 30 days following receipt of the insured’s agreement.

What if we got flooded?

In the case of flooding, you may have to wait for a natural disaster order to be issued. 

Catastrophe naturelle

The ‘state of natural disaster’ is a special procedure that was set up in 1982 so victims of exceptional natural events, such as storms, heavy rain, mudslides and flooding, as well as drought, can be adequately compensated for damage to property.

The government evaluates each area and deems whether it qualifies for the status of catastrophe naturelle (natural disaster). 

Essentially once a zone is declared a natural disaster, victims can claim from a pot of funds created by all insurers. If the zone is not declared a disaster, insurance companies are under no obligation to pay out. 

Under a “state of natural disaster” residents are covered for all those goods and property that are directly damaged by the phenomenon, in this case storms.

It applies to residential or commercial buildings, furniture, vehicles and work equipment that are already covered by insurance policies.

Homes must be already covered by a multi-risk insurance policy for the status of natural disaster to count.

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