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Swedish mortgage holders ‘under most financial strain in 12 years’

People with mortgages are seeing more strain on their finances than at any time in the last 12 years, Sweden's financial stability watchdog has said in a new report, although it says that the majority of people taking out new mortgages still have some wiggle room in their personal finances.

Published: 29 March 2023 14:17 CEST
Swedish mortgage holders 'under most financial strain in 12 years'
The average interest rate on new mortgages in 2022 was more than double the previous year. Photo: Anders Wiklund/TT

The new report from Sweden’s Financial Supervisory Authority (FI) found that the proportion of income mortgage holders were paying out in interest payment had almost tripled between 2021 and 2022, reaching 12 percent of disposable income. 

“In twelve years, we haven’t seen households under so much pressure as we do now,” FI’s General Director Daniel Barr said at a press conference announcing the report. “Pressure has increased on households and will continue to do so throughout the year.”

In the report, the authority notes that Swedish households’ loans had been increasing faster than their disposable income for some time, due in part to historically low interest rates and rising house prices.

However, during 2022 and the beginning of 2023, inflation rose substantially, interest rates more than doubled and house prices dropped.

In addition to this, many banks and other financial actors were now predicting a sustained period of low growth or even a recession, which would have a knock-on effect for households, not least those who bought properties in this time period.

The authority now believes that interest payments could increase to nearly 16 percent of disposable income by the end of 2023.

 

Number of first-time buyers increased in 2022

The analysis, based on a sample of people taking out new mortgages in early autumn 2022, showed that activity on the property market declined overall in 2022, but the number of first-time buyers increased to close to the levels seen before the pandemic in 2019.

Most of the people in the sample finalised their property purchases in the summer of 2022, or earlier. 

 

Otherwise, the report states, the sample was similar to results seen in 2021. People taking out new mortgages bought, in general, properties of a similar price in 2022 as in 2021, with mortgages of a similar size.

The average size of the loan compared with the overall price of the property - the belåningsgrad or loan-to-value ratio - was also roughly the same in 2021 as in 2022.

The skuldkvot or debt-to-income ratio, the size of the mortgage compared to household income, was slightly lower in 2022, with a somewhat smaller number of borrowers with a debt-to-income ratio over 450 percent and a loan-to-value ratio of over 70 percent. 

 

This may be in part due to the fact that a debt-to-income ratio over 450 percent and a loan-to value ratio over 70 percent both require borrowers to amortise an extra 1 percent of their mortgage each year, with borrowers falling into both categories having to amortise an extra 2 percent.

Average interest rate more than double previous year

The average interest rate on the mortgages taken out in the sample group was 3.1 percent, more than double the average 1.4 percent rate on mortgages in the previous year's sample. This means new mortgage holders are using a much larger proportion of their income (10 percent) to pay interest than in previous years.

This is the highest average interest rate reported since 2012.

 

At the same time, a much larger proportion of new mortgage holders chose variable rate mortgages than in 2021 - the largest number reported since 2016.

Those taking out new mortgages in 2022 were in general worse off already at the point they took out their mortgage compared with the same group in 2021, due chiefly to increased interest rates and prices rising in general.

This means, the report states, that many mortgage holders will need to reduce their savings or adapt their consumption to the changing economic situation.

Those who have taken out mortgages more recently will be affected to a greater extent, it adds, as they often borrow larger amounts and have less room in their personal finances to accommodate even higher inflation, higher interest rates and a loss in property value.

 

Individuals in financial trouble are, in some cases, able to pause the requirement to amortise their mortgages at the discretion of their bank, in what is referred to as a ventil, similar to a pressure valve. 

FI is still investigating to what extent the banks are allowing customers to use this pressure valve, with a final report on this due in June 2023. It states, however, that the general picture is that the pressure valve is being used much more often than in previous years.

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PROPERTY

INTERVIEW: ‘Most foreigners in Sweden don’t know they can get back excess rent’

In Sweden, people subletting apartments are not allowed to charge more in rent than they themselves pay. But foreign subtenants don't always know this. We asked Roland Sjölin, lawyer at the Swedish Tenants' Association, about how to get back excess rent.

Published: 18 April 2024 15:19 CEST
Updated: 21 April 2024 08:12 CEST
INTERVIEW: 'Most foreigners in Sweden don't know they can get back excess rent'

More and more of the people asking the Swedish Tenants’ Association, Hyresgästföreningen in Swedish, for help with excess rent are foreigners, Sjölin told The Local in an interview.

“The problem is that if you’re coming from another country, and you’re subletting an apartment, you’re probably not familiar with the rules in Sweden, because in other countries, it might be okay to overcharge your tenants.” 

He said that clients from India in particular seeking help from the association were now “very common”. 

“Many people come here to work as engineers in the IT sector and then have to rent somewhere,” he said, adding that as a group Indians appeared to be “very aware of their rights.”

Sweden’s rental sector is heavily regulated, with first hand contracts negotiated between landlords and the Tenants’ Association, and the rent that can be charged for second-hand contracts limited to only a small fraction above what the first-hand renter pays. 

“You’re not allowed to make any profit subletting an apartment in Sweden,” Sjölin explains. “You can only charge the subletting tenant the same rent as you [the first-hand tenant] are paying to your landlord, and then you can add the costs for internet and electricity, and perhaps a parking lot, if that is included.” 

Tenants’ Association lawyer Roland Sjölin. Photo: supplied.

You can also add a påslag or “markup”, if you are renting out the apartment fully furnished, but this cannot exceed more than 15 percent of the rent. 

That doesn’t mean that most landlords follow the law. The competition for rental apartments, especially in Stockholm, is so intense, that unscrupulous sublet landlords often try to get away with charging well over the legal amount, charging what is known in Sweden as ockerhyra, or “excess rent” and hoping that their tenants are too desperate to complain.  

What many foreigners do not realise is that even after the rental period is over, they can still get back any excess rent they have paid by applying to the Rental Board or Hyresnämnden, which functions like a court judging rental disputes. 

“If you have the evidence then it’s fairly easy,” Sjölin said. “I get a new case every second week on repayment of unfair rent, and I think that I win most of them.” 

“Nowadays, you can get paid back excess rent up to 24 months back in time, so people tend to get more money,” he added. “In some cases, they can get 200,000 kronor. In other cases, perhaps it’s only 30,000 kronor or 60,000 kronor. It depends on how long you have rented the apartment, and how excessive the rent you’ve been paying has been.”

The first step is to establish what would have been a fair rent, either by asking your landlord what they themselves pay directly or by checking with the Tenants’ Association.

“Because we negotiate most rents in Sweden, we normally know what the firsthand rent is,” Sjölin explained.

Then you need to collect together your evidence.

“It’s a good thing to have a written contract and also papers from your bank showing that you paid rent every month, and perhaps photographs of the apartment, so the rental board can get an idea of the apartment you were renting and what would be a fair rent, and also the termination for the contract so you can show the court how long you’ve been living in the apartment.” 

But Sjölin underlined that since Sweden has free burden of evidence, none of this is essential. 

“Even if you’ve been paying in cash, if you have witnesses who can testify what you were paying each month, you still have a chance of getting your money back. It’s a bit more tricky, but I’ve won two cases like that this year.” 

People in Sweden, he explained, tend to wait until the rental period is over before seeking to get paid back excess rent rather than challenging their landlord while they are still living in the apartment. 

“You don’t have any legal protection for your home for the first two years, so if you bring the matter up with the person you’re renting the apartment from you risk losing your contract and having to move out, so most people wait until they’re supposed to move anyway,” he said.

If you apply to the rental board for a refund close to the day you move out, you can then make your landlord pay back all excess rent paid in the 24 months leading up to the date you contacted the rental board.

If you are a member of the Tenants’ Association, you can contact them and ask for help with your application, but there are also specialist companies, like Orimlig Hyra AB who will buy your case off you and give you a refund within 48 hours, saving you a long wait in exchange for a cut of the money reclaimed. 

Sjölin said that the rental board normally took about 8 months to come to a judgement, but that if the person with the first hand contract appeals, that could extend the waiting time by between six months and a year.

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