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HOMES

Report: Stockholm is at risk of a housing bubble

Stockholmers are the third most likely to experience a housing bubble in their city, according to a key ranking investigating a number of metropolises across the world.

Report: Stockholm is at risk of a housing bubble
Apartments in Stockholm. Photo: Tomas Oneborg/SvD/TT

Swiss investment bank UBS said that the Swedish capital had the third most over-valued property market in the world, behind London in second place and Vancouver in first.

It examined 18 cities around the world and concluded that six of them were at risk of a housing bubble. Making up the rest of the top-six were Sydney, Munich and Hong Kong.

“Over the last 12 years, the real house price level in Stockholm has doubled. The pace of growth accelerated in the last two years as growth rates stood near 15 percent,” said the report, but noted that low interest on mortgages had stabilized the cost of owning a house in the same period.

It further added that property valuations had increased the most in Stockholm over the last four quarters, followed by Munich, London and Amsterdam.

The report said low-interest rates in Sweden and elsewhere had contributed to “overheating of markets for urban residential properties in recent years. As a result, prices in London, Stockholm, Munich and Zurich have reached new record levels after adjustment for inflation”.

Earlier this year, the Swedish founders of Spotify sparked debate after they suggested that a lack of available housing is making it difficult for them to attract the best talent, to the degree that they could be forced to grow in other countries rather than Sweden unless the situation improves.

While properties in many parts of Sweden are generally inexpensive compared to the rest of the world, The Local has previously reported on Stockholm's price boom, including the capital's acute housing shortage on the rental market, which is believed to be driving property prices upwards for buyers as well.

UBS criticized the city's divided rental market, which means that those without points in the local authority's queue for price-controlled apartments have to resort to the often vastly overpriced sub-letting market.

As for the buyers' market, the government has taken steps to bring prices down, including making it mandatory for home owners to pay off their mortgage, but the measures have so far had little effect.

“A dysfunctional rental market provides no incentives to counteract the long-lasting supply shortage. And recently enacted regulations to cool down the housing market have not shown any significant results yet,” concluded the report.

A bostadsrätt apartment (a type of housing ownership common in Sweden) in Stockholm currently costs 55,374 kronor ($6440) per square metre, compared to a national average of 37,118 kronor, according to real estate statistics agency Mäklarstatistik. A detached house in the capital area costs 42,199 per square metre, compared to a national average of 22,464 kronor.

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MONEY

How you can lower the monthly cost of your Swedish mortgage

It’s no secret that mortgages in Sweden have become more expensive over the last year or so, as interest rates have risen following high inflation. But did you know there’s a way you can lower your monthly mortgage cost?

How you can lower the monthly cost of your Swedish mortgage

Essentially, when you take out a loan in Sweden, the government gives you a discount on the interest you pay, in the form of a tax rebate.

This doesn’t include interest paid on all types of loans – for example, student loans are not included – but it does include your mortgage.

In order to qualify for the discount, referred to as ränteavdrag (interest deduction) or skatteavdrag (tax deduction), you need to fulfil some requirements: 

  • You’ve paid income tax and at least 1,000 kronor in interest in the last taxation year
  • You have a capital deficit (meaning that your interest costs must be greater than any capital income you’ve earned through interest or dividends)
  • You are either partly or wholly responsible for the loan or mortgage in question

If there are two of you who are both named on the mortgage who fulfil these requirements, you’ll each receive 50 percent of the total tax rebate.

The interest deduction is automatically subtracted from your yearly tax and listed in your yearly declaration, if you fulfil the requirements, meaning you’re likely to get it back as a lump sum when tax season rolls around in April.

How much do I get?

The actual sum you get back varies depending on how much tax and interest you’ve paid during the year, but there are some general calculations which can give you a guideline of what you might get.

You’ll get 30 percent of your interest costs back on the first 100,000 kronor you pay in interest over a year, and 21 percent on anything over 100,000 kronor. 

If there are two of you, you each have your own individual tax deduction, even if you’re paying the same loan, so as a pair you’ll get back 30 percent on the first 200,000 kronor, as well as 21 percent on anything over this figure.

To figure out how much you’ll get, you need to first find out how much interest you’ve paid during the year your declaration covers and subtract this figure from your capital income earned through interest or dividends.

If your figure is negative, that means you can subtract this figure from your tax paid during the year. Bear in mind that if you owe tax, then your interest deduction amount will be used to pay it back first, lowering the total amount you receive.

You can also change the proportion of the deduction applied to each partner if you share a mortgage, dividing it 60/40 or 70/30, for example, if you don’t share the mortgage 50/50. You can do this through your bank or by manually changing the figures in your tax declaration.

I don’t understand. How does this make my monthly mortgage payments cheaper?

Here’s where something called skattejämkning comes in. This literally translates as “tax equalisation”, and it’s a way you can spread your tax rebate for interest costs out over a year, lowering your mortgage costs each month rather than of getting a lump sum in the form of a tax rebate during tax declaration season.

In order to equalise your tax, you’ll need to contact the Tax Agency directly, filling out a form with the catchy title of SKV 4302 – Jämkning (ändring av preliminär A-skatt) or using their Jämkning online service.

To do this, you’ll need to have in-depth figures on things like your salary, pension payments, sick pay and any other income like unemployment benefit or maternity or paternity payments, as well as capital income and any business income for the tax year you’re applying for, as well as your expected income for the rest of the year.

If your application is accepted, the Tax Agency will tell your employer to subtract less tax from your payslip each month, effectively meaning that you get your tax rebate for interest costs back in your monthly pay instead of getting it paid out all at once.

Bear in mind that if you do go down this route it’s important that your calculations are correct. If you accidentally overestimate your interest payments or underestimate your tax owed, you could end up being hit with a hefty tax bill once your declaration comes through.

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