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EXPLAINED: Will Swedish housing prices plummet as interest rates rise?

The Swedish financial supervisory authority warned on Wednesday that rising interest rates could lead to house prices falling "quite sharply". How likely is it that this will happen?

EXPLAINED: Will Swedish housing prices plummet as interest rates rise?
Houses for sale at an estate agent in Stockholm. Photo: Janerik Henriksson/TT

What financial circumstances might make it difficult for borrowers to repay loans?

With an increase in the cost of living, including rising interest rates and rising electricity prices, there are plenty of circumstances that may make it difficult for borrowers – especially those holding large debts in relation to their income – to repay their mortgages.

Households with large debts are therefore more sensitive to an increase in interest rates, according to the Swedish financial supervisory authority, known in Swedish as Finansinspektionen (FI).

The agency published its annual Swedish Mortgage Market report on Wednesday.

“Large debts also mean a higher sensitivity if you were to suffer unemployment during an extensive recession,” said Henrik Braconier, the authority’s chief economist.

Other factors that could stretch borrowers’ finances include rising energy prices, higher food prices, and growing inflation.

“Apples, oranges, tomatoes have gone up by 30 percent,” said Américo Fernández, a household economist at SEB. “Wheat is coming from Ukraine and it’s getting harder and harder to get hold of.”


Will homeowners become unable to repay their mortgage loans?

Not according to Fernández.

“One of the last things Swedish households will fail to make their payments on is their mortgage and their houses,” he said. “They would rather decrease their spending on vacations abroad, or restaurants.”

The FI report noted that most new mortgages include margins that allow for fluctuations in the borrower’s finances. This means that mortgage holders have a cushion that allows them to handle financial changes.

“Our stress test shows that they can handle increases in the interest rate and also loss of income,” said Magnus Karlsson, FI’s director of macroanalysis. “New mortgages have margins in them calculating discretionary income, and will be able to absorb increases in interest rates and loss of income.”

SEB foresees an interest rise of up to three percent over the next two years, Fernández said,an increase that can be absorbed by most households.

Both Fernández and Karlsson agreed that if homeowners have to cut back on spending, those cuts will not come from debt repayment, but from their disposable income – the money they might ordinarily spend on entertainment, eating out, or travelling.

So while household spending may have to change, financial stability is not at stake for most households.

What’s going on with the housing market?

Right now, a record number of mortgage-holders have loans that are worth more than 4.5 times their income. This year, more than 14 percent of new mortgagors took on such large loans, compared to 6.3 percent last year.

A “low interest rate, increase in housing prices, increase in disposable real income and a housing market that is not functioning well” are all factors in the large debts that homeowners have incurred today, Karlsson argued.

Fernández noted that there is an imbalance between the low supply of housing and the high demand for housing, which is in part responsible for the high housing prices we see today.

He said a decrease in price of a few percentage points would not be surprising: “We’re coming from two years of exaggerated prices.”

Will housing prices begin to decrease after two years of increasing prices?

Calculations for three different scenarios tested by FI show that housing prices will decrease, Karlsson said.

While the agency does not predict housing prices, its report shows that under three different scenarios – the first an increase in mortgage interest rate, the second an increase in energy prices, and the third a combination of the first two with a reversal to pre-pandemic housing preferences – prices will decrease.

The Local Sweden reported last year about increasing housing costs in Sweden, spurred on in part by a desire for bigger homes further away from urban areas during the COVID-19 pandemic.

Fernández called the two years of increasing housing costs “surprising.”

“10-12 percent two years in a row, that’s historical in these uncertain times,” he said, noting that prices were still increasing in figures for March this year.

What sorts of housing will see the largest price decrease?

The FI report also included various scenarios of how the price of different types of housing may fluctuate based on changes in the interest rate.

One scenario assumed a 1 percent increase in interest rates this year and a 0.5 percent increase next year, and predicted that while the price of apartments owned in a cooperative – called bostadsrätter – would fall only slightly, the price of detached houses would fall by 10 percent.

Another calculation that accounted for rising electricity prices and a decline in new housing purchases found that the price of bostadsrätter and detached houses risked falling by an average of 30 percent.

Is there a plan to let borrowers end their mortgage terms early?

“We believe it needs to be simpler and more inexpensive for households to repay their mortgages early,” FI Director General Erik Thedéen is quoted as saying in a press release published by the agency on Wednesday.

To that end, Thedéen said at a press conference that the agency had sent a request to the government to change the calculation model for how banks are compensated when mortgages are terminated early.

“When you terminate a loan agreement and the bank incurs costs, it must be reimbursed,” Thedéen said. “But at present the banks are overcompensated, that is what our calculations show. If the government follows our line and changes the model and follows our line, then the banks must simply adapt.”

When asked about the likelihood of this request being granted, FI recommended reaching out to the Ministry of Justice for comment.

What does this mean for foreigners in Sweden?

If you’re already a mortgage holder, then as Karlsson and Fernández assured, mortgage calculations include a cushion that allow for changes in your financial circumstances.

If homeownership is in your future, housing prices may begin to decrease in the near future, so it’s worth keeping an eye on your local real estate listings.

By Shandana Mufti

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For members


What happens if a Swedish housing cooperative gets into financial trouble?

Most Swedish housing cooperatives have had to raise members' monthly payments sharply this year to cover rising interest payments and energy costs. But what happens when the sums stop adding up?

What happens if a Swedish housing cooperative gets into financial trouble?

What is a bostadsrättsförening and how does it work? 

When you buy an apartment in Sweden, you’re almost certainly buying a share of a housing cooperative, or bostadsrättsförening, which comes with the right to live in one of the cooperative’s apartments. Almost no flats in apartment blocks are owned directly in Sweden. 

This means that on top of your mortgage to buy your flat, you are also taking on a share of the cooperative’s existing loans, which can be as much as 15,000 kronor/m2 – so 1.8m kronor on a 120m2 apartment – as well as your share of any expensive renovations that need to be made in future. 

Cooperatives are run by their members, who choose a board to make decisions on annual fees, maintenance, economy and other issues.  


How strained are the finances of Sweden’s housing cooperatives? 

A June report from Sweden’s biggest housing cooperative, HSB, which analysed the finances of 760 associations in Stockholm, warned that they needed to increase members’ monthly payments by between 40 and 50 percent on average to safeguard their finances in the face of rising interest rates and energy prices. 

“The situation is serious and all of these unavoidable and rapidly rising costs need to be met with increased monthly payments,” the report warned. “Associations which have held down their monthly fees and as a result saved too little for future maintenance are facing an even steeper uphill climb. For them its not just about financing rising operating and interest costs but making up for previous overly low fees.”

According to the report, interest costs for housing cooperatives’ loans rose by as much as 20 percent in 2022, while operating costs like energy rose by four percent, with costs rising even further this year. 

Despite this, the majority of housing cooperatives have not increased their members’ fees, HSB reported, meaning that they are saving an average of only 185 kronor/m2 a year for future maintenance, well below the recommended rate of 250-300 kronor/m2. 

According to HSB, only 15 percent of associations raised fees from April 5th and only 6 percent from July 1st. 

What might push a cooperative towards a crisis? 

Many buyers of new-build housing cooperative apartments, which tend to be loaded with debt to fund the initial building costs, are finding that the economic plans the developers agreed with members when they bought the apartments no longer stack up, leaving them paying much higher monthly fees than they bargained for. 

When it comes to more established cooperatives, many have allowed unsustainable debts to build up over a decade or more of ultra-low interest rates, or have decided not to save up for major maintenance projects like replacing the roof or redoing the plumbing, expecting to be able to borrow at low rates when required.

How much can a housing cooperative raise monthly fees? 

The first step when a cooperative’s finances get strained is for the board to increase members’ monthly fees to try and push the association’s annual accounts into the black. There is no limit under Swedish law under how much a cooperative can increase its fees, and the main way you, as a member, can prevent this happening is to join the board and argue for lower fees. 

When it comes to new-build housing cooperatives, some buyers are taking the developers to court, arguing that the building company misinformed then of their likely monthly costs. 

If members cannot afford the higher fees, they risk losing their right to live in their apartment. The bostadsrätt is then sold by Sweden’s debt enforcement agency, Kronofogden, with the former member often left with a substantial portion of their mortgage to pay after receiving the money. 

Sweden’s housing cooperative law, or båstadsrättlag, is quite strict when it comes to late payments, with the owner forfeiting their right to their apartment if they are more than a week late in making the monthly payment. The cooperative must inform the holder of the apartment right that they can recover their right if they pay their fee within three weeks.

Can a housing cooperative ask members to make additional capital payments? 

Yes. If fees are raised as much as can reasonably expected without stabilising a cooperative’s finances, the board might ask members to make a one-off capital payment, called a direkt kapitaltillskott, based on the size of their apartment. 

A housing association might also ask for members to make a payment to cover the cost of a big renovation, or to pay off some of the cooperative’s loans, or to reduce the monthly fee and thereby increase the sale value of the apartments. 

This can be spread out over several months through a temporary increase in membership fees, or paid as one lump sum. 

Such a decision requires a meeting of all members, at which every member must vote in favour. 

If one or more members cannot afford to pay the additional capital payment, this can be handled by putting them in debt to the association, with the debt paid either at a time when the member can afford it or when they eventually sell their apartment. 

Can a housing cooperative delay expensive maintenance projects? 

Yes. All housing cooperatives will have what is called an underhållsplan, or “maintenance plan”, normally drawn up by a surveyor, which lays out when the roof is due to be replaced, the facade renovated, the plumbing or wiring updated, etc. But this is advisory rather than obligatory and if a cooperative is facing financing strain, it can opt to delay some or all of this renovation work. 

This should not be taken lightly, however, as housing association boards are deemed responsible for maintenance of the property, and risk being fined or even jailed for causing bodily damage, or even death, through negligence if delaying renovation leaves the building in a dangerous state. 

What happens if a housing cooperative goes bankrupt? 

It has up until now been very unusual for a housing cooperative to go bankrupt, with an average of about 50 of the country’s 27,500 associations declared bankrupt every year. Even during Sweden’s financial crises of the 1990s and late 2000s, almost all of the country’s housing cooperatives managed to stay solvent, although this often required financial contributions from members. 

Bankruptcy mainly happens in cases, such as that of the Kinesiska Muran, or “Chinese Wall”, development in Malmö, where fraudsters have infiltrated or taken over the board of a cooperative. 

If bankruptcy takes place, the building is generally sold as a rental association, or hyresrättsförening, to a private investor or a company, with the former members of the association becoming tenants. 

Housing association members are last in the list of those receiving money from the sale, so, once creditors have been paid off, they tend not to receive much for their apartment, meaning they risk being left with just their mortgage loan. 

Sweden’s strong laws on security of tenure, or besittningskydd, however, mean that it is difficult for the new owner to evict the tenants.