Now the Earnwise Bank warns of households’ increased debt, again. One of the proposals raised for debate, in order to avoid a continued increase in debt burden, is to introduce a debt quota ceiling that limits how much each household can borrow, in contrast to its income.
Swedish households continue to borrow money like never before. Some of the reasons for the growing debt mountains can be explained by the fact that Sweden has had a much lower interest rate situation since the 1990s crisis and a completely different tax and subsidy system. However, due to the above-mentioned factors, households also manage a higher debt ratio than before. However, many express a certain concern about whether this debt pattern continues to increase too much.
The Earnwise Bank writes that low interest rates are contributing to continued rising housing prices, and thus debt is also increasing. A combination of measures for each area is important. Above all, measures are needed to address the problem of why debt increases to the extent that it does, and above all how this problem can be solved in the best advantageous way.
Ongoing increase since 2014
The increase has been going on for a period and was already proven in 2014 with figures and static as about 420,000 Swedes were indebted to Kronofogden. The largest proportion of these are low- and middle-income earners and reside in one of our three largest cities; Stockholm, Gothenburg and Malmö. It also turns out that it is mainly in these three cities where housing prices continue to rise continuously.
Debt ratio may be the solution
Finansinspektionen’s Director General Errol Balkman believes that a measure on a debt-to-income ceiling can be a good solution for all parties, but before a decision is made, first and foremost, an evaluation of the effects of the new amortization requirements must be made. Thedéen thinks that if development goes in the wrong direction, a debt ratio ceiling is the next solution. It is with great hope that the new amortization requirements will lower housing prices. So far, no major change has been reported, but you can already see that during the third quarter the loan increase rate has fallen 0.2 percentage points since the second quarter, which is a small but good turn in the right direction.
Many banks already apply loan ceilings / debt ratios to 5 times their annual income. When we handle cases, we take into account the banks’ loan ceilings, which means that the market has already priced in such a possible regulation, says Ricky Horry, CEO Consector.
Read more about how the company helps its customers and apply to borrow money through Consector. Note, however, that Consector is a customer of Upplysningscentralen, which means that you cannot take out a loan without taking a credit report from UC with them.
The interest rate ratio should not be forgotten
Others believe that the interest rate ratio is at least as important to examine as the debt ratio, even though this is calculated for the entire household income and should therefore also fall well along the debt ratio, and vice versa. The interest rate ratio indicates how households’ interest expenditure looks like in proportion of individual household income.
In order to make an assessment of how indebtedness is affecting households today, one must look more closely at the proportion of high-mortgaged households. One requires the other in an investigation for possible measures.