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Dames

Swedes Cap Home Loan Ratios

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Swedish FSA Caps Home Loans To 85% Of Property Value From Oct

The Swedish Financial Supervisory Authority (FI)said Friday it will limit mortgages to 85% of property value from October, in an attempt to rein in excessive lending.

"In Sweden, mortgages represent the largest portion of household's total indebtness. In order to increase consumer protection and suppress unhealthy developments in the credit market, FI is implementing new rules as of October 1 2010", the regulator stated.

"The decision will effect new lending and further lending on existing loans, but not already taken loans", Swedish Financial Supervisory Authority Director Martin Andersson said.

The regulator said the new rules will have no significant impact on house prices.

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That is nowhere near enough in a low rate environment.

I proposed a counter-cyclical rule in a different thread :

Minimum deposit = 35% - interest rate - interest rate term.

This would encourage people to fix for longer and would help reduce booms and busts.

I am quite a free market person. I can reconcile my beliefs in this regard in two ways :

1. People are not financially astute. Even in a free market, you need consumer protection laws.

2. The lender of last resort function of central banks is a benefit that commercial banks receive for free which imposes a cost on society. I see nothing wrong with trying to ensure that the function is less likely to be required as I find it almost impossible to price so that we could explicitly charge commercial banks for the central bank function.

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since the value is based on lending, all the banks need to do is increase the income to loan ratio...maybe to 6 to 1 to keep values up.

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I'm still not conviced about using LTV's as a tool for controling prices. I believe that it would be much more effective and fairer on the borrower if the advance was capped at a mulitple of salary as well.

Controlling ltv doesnt give a 100% control over prices. LTV ratio caps would mean that banks find new ways of lending irresponsibly. Remember, banks cannot be trusted. A bank can turn a blind eye to the fact that someone only has a deposit via creative accounting (gifted deposit from builder / vendor etc).

If this type of practice is discovered by a regulator, the bank has a reasonably decent excuse to meakly say it too was a victim of the fraud - not a perpetrator. We need to make sure the onus is on the banks and I am not convinced this would be the case with LTV limits.

They would have no excuse if they were told that lending limits were based on salaries which must be checked against hmrc records!

Also, if LTV limits could be enforced in practice, I think they would only be effective in the short term. In the long term, it is merely propgating another equity driven boom.

In short, if the focus is on 'equity', there will always be a burning desire for HPI, as greater HPI gives more equity. If the focus is on 'affordability', it may just help to drill into peoples tiny minds that HPI is merely a byword for increasing the cost of living

Edited by Caveat Mortgagor

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since the value is based on lending, all the banks need to do is increase the income to loan ratio...maybe to 6 to 1 to keep values up.

I like the Candadian model where they also limit debt service costs as a percentage of income.

The limit on total debt service is something like 40% while mortgage servicing costs are limited to something like 32% of income. The mortgage servicing costs are calculated using a long term average of five year fixed rates to remove the impact of very low rates at the moment and to prevent people from "sliding down" the term structure of rates to increase indebtedness.

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Thought this might be of interest to some

Swedish FSA Caps Home Loans To 85% Of Property Value From Oct

The Swedish Financial Supervisory Authority (FI)said Friday it will limit mortgages to 85% of property value from October, in an attempt to rein in excessive lending.

"In Sweden, mortgages represent the largest portion of household's total indebtness. In order to increase consumer protection and suppress unhealthy developments in the credit market, FI is implementing new rules as of October 1 2010", the regulator stated.

"The decision will effect new lending and further lending on existing loans, but not already taken loans", Swedish Financial Supervisory Authority Director Martin Andersson said.

The regulator said the new rules will have no significant impact on house prices.

There is nothing stopping the bank offering a separate unsecured loan when they sell the mortgage to make any shortfall to 85%

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I like the Candadian model where they also limit debt service costs as a percentage of income.

The limit on total debt service is something like 40% while mortgage servicing costs are limited to something like 32% of income. The mortgage servicing costs are calculated using a long term average of five year fixed rates to remove the impact of very low rates at the moment and to prevent people from "sliding down" the term structure of rates to increase indebtedness.

I like the Brazilian model, shown on the beeb a couple of years ago, where finance on private housing is banned...or was.

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In France, lenders look at the level of your debt total annual earnings, and the stability of your income. As a general rule debt cannot exceed 33% of total eligible revenues.

That's total debt, not just your mortgage.

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Thought this might be of interest to some

Swedish FSA Caps Home Loans To 85% Of Property Value From Oct

The Swedish Financial Supervisory Authority (FI)said Friday it will limit mortgages to 85% of property value from October, in an attempt to rein in excessive lending.

"In Sweden, mortgages represent the largest portion of household's total indebtness. In order to increase consumer protection and suppress unhealthy developments in the credit market, FI is implementing new rules as of October 1 2010", the regulator stated.

"The decision will effect new lending and further lending on existing loans, but not already taken loans", Swedish Financial Supervisory Authority Director Martin Andersson said.

The regulator said the new rules will have no significant impact on house prices.

Dames do you have a link to the source of the info, i have some friends thinking about moving out there due to a job offer and were planning on getting a 100% mortgage out there so would be good info to pass to them :) cheers.

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I like the Brazilian model, shown on the beeb a couple of years ago, where finance on private housing is banned...or was.

It was inevitable, but I like the Brazilian model too .....

0665383dea591c98e999527915d3966c_gisele_bundchen-5281.jpg

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Dames do you have a link to the source of the info, i have some friends thinking about moving out there due to a job offer and were planning on getting a 100% mortgage out there so would be good info to pass to them :) cheers.

From The Local:

The Swedish Financial Supervisory Authority (Finansinspektionen) has proposed banks limit the amount offered for new residential mortgages to 85 percent of a property's market value.

...

...

The agency believes excessive indebtedness makes borrowers vulnerable when property prices decline and they are forced to sell their homes. It hopes to make the guidelines effective by October 1st.

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  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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