In its latest stability report, Sweden’s financial supervisory authority, Finansinspektionen, has said that unexpectedly large interest rate fluctuations and uncertain global developments could test the financial sector’s resilience.
The Swedish economy is strong but is showing signs of a slowdown. Interest rates are expected to rise in the coming years, which should lead to a reduction in risk-taking and debt growth rates. At the same time, it will be important to monitor the commercial property market, where there is an elevated risk, said the watchdog.
High levels of household debt are the biggest risk to Sweden’s financial system, said the Riksbank, the Swedish central bank, in its semi-annual financial stability report, published on Wednesday. Despite a recent cooling off in the housing market, house prices remain high in relation to household assets.
Concerned over the fact that 70 per cent of all mortgages in Sweden are variable rate mortgages, thereby making households sensitive to interest rate increases, Riksbank Governor Stefan Ingves has called on politicians to legislate so that home owners are forced to borrow a larger share of their loans at a fixed rate.
Meanwhile, a number of the parliamentary parties have indicated that they want to scrap tighter amortisation requirements, introduced on 1 March this year. Talking to Svenska Dagbladet, Stefan Ingves warns that such a move would heighten the risks in the economy.
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