Sweden Housing Crash Coming Up; Average Swede To Repay Mortgage In 140 Years;

[Snafu]

It's funny how quickly people forget/rationalise about bubbles. "It's different this time" - in every country.

[The Knimbies who say No]

Plenty of UK I.O. borrowers seemed to have taken advice from Buzz Lightyear on the best repayment horizon.

[Snugglybear]

A few minutes' Googling shows that 20 years is the usual term of a mortgage in Sweden. So what happens when the 20 years comes to an end and the borrower hasn't repaid the principal in the intervening time?

[cashinmattress]

They have a strange system over there.

Tax breaks on mortgages, up to 30% on interest paid.

You pay off your mortgage, you pay more taxes.

I think its typical for folk to pay about 1/6 of the principal and fester forever with interest payments.

Their tax system sucks and acts as a disincentive to investments, or hard work, etc...

I think they figured out that keeping people heavily in debt, but keeping it serviceable by even lowly workers was the best way to keep the disney-esque fantasy going...for a while.

Biggest student and household debts in Europe, massive unrepayable mortgages, inflated currency, failing exports, race rioting and inequality...

The Sweden I knew is nothing like reality. Everybody lives with their heads buried in the sand.

[Bloo Loo]

Swedish property porn....the original....the dirtiest.....the best....the longest lasting...

[zugzwang]

They have a strange system over there.

Tax breaks on mortgages, up to 30% on interest paid.

You pay off your mortgage, you pay more taxes.

I think its typical for folk to pay about 1/6 of the principal and fester forever with interest payments.

Their tax system sucks and acts as a disincentive to investments, or hard work, etc...

I think they figured out that keeping people heavily in debt, but keeping it serviceable by even lowly workers was the best way to keep the disney-esque fantasy going...for a while.

Biggest student and household debts in Europe, massive unrepayable mortgages, inflated currency, failing exports, race rioting and inequality...

The Sweden I knew is nothing like reality. Everybody lives with their heads buried in the sand.

140 years on average! How long do the laggards take? Are there Swedish households with 19th century mortgages still outstanding?

The Swedes appear to have one-up on even the Japanese in the reality-is-optional stakes.

[Bloo Loo]

140 years on average! How long do the laggards take? Are there Swedish households with 19th century mortgages still outstanding?

The Swedes appear to have one-up on even the Japanese in the reality-is-optional stakes.

not sure how a "death pledge" can be passed to an heir.

[Snafu]

The 140 year average quote, I really don't understand that bit. Most mortgages run on 20-30 years. I call bollix.

[yellerkat]

The 140 year average quote, I really don't understand that bit. Most mortgages run on 20-30 years. I call bollix.

Yep, complete and utter bollix.

LINK:

Swedish mortgage providers’ loan up to 75% of a property’s value. Usually there are fixed rate option periods for repayment. The payment can be over a period of approximately

20-25 years

. The payment terms are very flexible. Mortgage interest rates in Sweden are relatively low, at around 2% - 2.5%

[Snugglybear]

The 140 year average quote, I really don't understand that bit. Most mortgages run on 20-30 years. I call bollix.

They don't actually have mortgages for 140 years, it's just an illustration of how little of the principal Swedish borrowers pay in general.

"A report last week from the Financial Supervisory Authority (FSA) showed that at the current pace of amortisation, it would take Swedish households an average of 140 years to repay their home loans. Only 40 per cent of borrowers with mortgages smaller than 75 per cent of their property's value actually pay down their debt, the report showed."

http://www.btinvest.com.sg/property/overseas/sweden-targets-lengthy-mortgage-repayments-20130312/ (12.03.13)

Another website claims that people pay off the principal when they sell the apartment/house. That, presumably, is why there's a flap about the consequences of a fall in house prices:

""Swedes need to start amortising more once the economy starts to pick up speed," said Par Magnusson, chief economist at Royal Bank of Scotland Group plc in Stockholm. "If they don't, the Swedish economy will be very vulnerable to a dramatic fall in house prices, which could trigger forced amortisation and really dent consumption."" (same link as above)

I gather the theory is that people keep remortgaging / moving with a new mortgage until they retire, then either downsize to pay off the principal and buy a smaller place, or use other investments to pay off the principal.

[interestrateripoff]

Plenty of UK I.O. borrowers seemed to have taken advice from Buzz Lightyear on the best repayment horizon.

The house price increases will pay for it. Simples.

[Mrs Bear]

They don't actually have mortgages for 140 years, it's just an illustration of how little of the principal Swedish borrowers pay in general.

"A report last week from the Financial Supervisory Authority (FSA) showed that at the current pace of amortisation, it would take Swedish households an average of 140 years to repay their home loans. Only 40 per cent of borrowers with mortgages smaller than 75 per cent of their property's value actually pay down their debt, the report showed."

http://www.btinvest.com.sg/property/overseas/sweden-targets-lengthy-mortgage-repayments-20130312/ (12.03.13)

Another website claims that people pay off the principal when they sell the apartment/house. That, presumably, is why there's a flap about the consequences of a fall in house prices:

""Swedes need to start amortising more once the economy starts to pick up speed," said Par Magnusson, chief economist at Royal Bank of Scotland Group plc in Stockholm. "If they don't, the Swedish economy will be very vulnerable to a dramatic fall in house prices, which could trigger forced amortisation and really dent consumption."" (same link as above)

I gather the theory is that people keep remortgaging / moving with a new mortgage until they retire, then either downsize to pay off the principal and buy a smaller place, or use other investments to pay off the principal.

Swedish friend here has son in Stockholm, 3 small children. Has recently downsized to save on mortgage payments, + make a bit on the sale.

[Henrik]

From what I gather from my Swedish acquaintances, in Sweden you have several mortgages (one large one at say 75% of the total amount at a lower interest rate) and then a couple of smaller ones (say 10-15% of the LTV each), which are at higher interest rates.

People obviously pay off the higher interest ones first, and as far as I'm aware, as soon as they've paid off the higher ones, they consider the complete house paid off, in effect nobody ever pays off the lower interest mortgage. Even the EA web sites with their mortgage calculators are like this - they say a repayment period of say 25 years, and it looks impressively cheap, until you realise that the mortgage they've paid off is only the top interest one.

It's completely stupid, obviously, but as above, the tax breaks "break" the market. I also echo the comments about work not paying in Sweden (well, it pays for a lot of public sector employees...), which is why I couldn't wait to leave as soon as I possibly could.

[zugzwang]

From what I gather from my Swedish acquaintances, in Sweden you have several mortgages (one large one at say 75% of the total amount at a lower interest rate) and then a couple of smaller ones (say 10-15% of the LTV each), which are at higher interest rates.

People obviously pay off the higher interest ones first, and as far as I'm aware, as soon as they've paid off the higher ones, they consider the complete house paid off, in effect nobody ever pays off the lower interest mortgage. Even the EA web sites with their mortgage calculators are like this - they say a repayment period of say 25 years, and it looks impressively cheap, until you realise that the mortgage they've paid off is only the top interest one.

It's completely stupid, obviously, but as above, the tax breaks "break" the market. I also echo the comments about work not paying in Sweden (well, it pays for a lot of public sector employees...), which is why I couldn't wait to leave as soon as I possibly could.

Like every other pyramid scheme it works as long as there's an exponentially rising float.

[DavidSWP]

I work in Sweden every week (Stockholm) - lived here for 7 months last year and was looking at buying property. The strangest thing about buying in Stockholm is that if you buy an apartment (most people live in apartments) which will cost you say 3 million - 5 million SEK (£300K - £500K) for a modest apartment, get this - YOU DON'T EVEN OWN IT! You buy are buying shares in the company that owns the building and own the right to occupy one apartment. All rights you have on this apartment are severely limited - If you want to rent it out legally, they may let you do it for 6 months but if you don't live in it personally for 6 months (1 year in some cases) they will force you to sell your share. If you rent it out legally it will be at rent controlled prices which will no-where near cover the mortgage repayments.

People in Stockholm absolutely only 'buy' property as an investment expecting it to go up in value - there are almost no other advantages to owning it. If you are a Stockholmer, you typically join the social housing 'queue' when you are about 16 (previously parents used to add their newborn babes to the queue but I don't think that's allowed any more). If you are on the queue for say 10-20 years you have a chance to rent an old-build apartment in the city center and you pay a quite small rent which reflects the fact that the building is old and has already been paid for. You may pay about £400 for an apartment in the old town which would be valued at £2 million. If you have been on the queue 5-10 years you may get a new build fairly close to the city center for say £1000 per month rent. Or if on the queue for 2 years pay £600 to rent a small apartment in a suburb 5 to 8 kilometers from the center in a 90% immigrant area, though still on the outskirts of the metro/underground. This is if you are a lucky one who can even join the social housing queue.

Most immigrants and Swedes from outside Stockholm have no choice but to sub-let from someone who got the apartment on the queue or an 'owner'. Rents are controlled and people subletting are only legally allowed to charge 10% more than the apartment would be rented out directly from the co-op company that own the building. What actually happens is that people who got the rental on the social housing queue or 'own' the apartment charge massive illegal rents and a blind eye is often turned to this practice. There is a massive underclass of disenfranchised people in Stockholm, may of whom can't even join the social housing queue because you first must get a 'personal number' (a bit like a NI number), these a jealously guarded by the powers that be and while you can live in Stockholm without one you can't even go and see a doctor without it! Stockholm is set up for Stockholmers, immigrants work as cleaners. Hence riots.

'Property' prices are held up by:

1. speculation mainly

2. immigrants/outsiders who have done well and want to 'buy' to avoid having to wait 20 years on the social housing queue . 95% of housing in Stockholm is owned by social co-op companies.

If you buy a free-hold house (of which there are few), expect to pay £4,000 in council tax equivalent each year (I think they reduced this recently but still high)

Edited June 3, 2013 by DavidSWP

[Snugglybear]

<snip> The strangest thing about buying in Stockholm is that if you buy an apartment (most people live in apartments) which will cost you say 3 million - 5 million SEK (£300K - £500K) for a modest apartment, get this - YOU DON'T EVEN OWN IT! You buy are buying shares in the company that owns the building and own the right to occupy one apartment. <snip>

So almost exactly like leasehold flats in London, then. (Apart from the subletting.)

[DavidSWP]

So almost exactly like leasehold flats in London, then. (Apart from the subletting.)

It's a bit different in that in Sweden you have far fewer rights over the apartment you paid for and the tax you pay on an owned apartment + the mortgage is vastly more than the rent you will pay if you are a native Stockholmer and got a social housing apartment. In the UK renting may also be cheaper, but not much in most cases + if you buy you have many more rights + prestige. Having a rented apartment in Stockholm having been on the social housing queue for a number of years is actually the most prestigious thing in Stockholm. In the UK if you rent you are regarded as scum.

When I ask people in the UK why they bought a place rather than rent, the first thing is generally 'to have a place of our own' and not to have to put up with having no rights over the apartment, bad landlords etc. but if you ask a Stockholmer its only ever about capital appreciation because there are no advantages at all in owning.