Already this spring, the Banking Association recommended that anyone who subscribed for a mortgage for which the loan-to-value ratio was above 70% should be required to repay, first and foremost relatively quickly down to just 70%. Considering that banks and other players in mortgage lending generally follow the advice of the Banking Association, a clearer amortization requirement has emerged in 2014. But already, half a year later, the association wants to tighten the requirements even further.
On October 7, the Banking Association issued the recommendation that amortization requirements should apply to all new mortgages for which the loan-to-value ratio is 50% or more. This is a sharpening of the previous recommendation, and the new principle meets significantly more potential borrowers than applies if the repayment requirement is first updated at a loan-to-value ratio of 70%. There are very few who can pay more than half the cost of a new home with cash, which means that you have to start repaying relatively large sums already in the first quarter after moving in.
Both positive and negative for the borrowers
For the individual borrower, the stricter amortization requirement can of course be perceived as negative. Before there was any repayment requirement at all, many borrowers chose to have the mortgage as non-repayable during the first years, because it still entails greater costs to move in, renovate and arrange in the new home. For some, it was a way to keep the cost down when they moved to a new city and then, for example, in a little more peace and quiet, for example, be able to look for new job in the resort.
The bank’s new position has emerged
Mainly from a macro perspective. In a statement from Swedbank, it appears that the bank views this new requirement as positive because it is a step in the direction that both the authorities and the Save Con Bank want to take. What is then primarily aimed at is the overheated housing market. In comparison with residents in many other countries, the Swede is very heavily mortgaged and if the housing bubble bursts, there is the risk that many highly mortgaged homeowners end up in a difficult position. By having an early (and clear!) Amortization requirement reduces the risk that a “real estate crisis”, similar to the one that occurred in the US a few years ago and which the world economy is still struggling to cope with, occurs. This change in the amortization requirement also increases the chance that the repo rate will be lowered slightly during autumn or winter 2014 according to Swedbank.
Stricter demands and lower interest rates – whether it is positive or negative for the borrower, depends mainly on the financial situation you are in. Clearly, amortization is still a type of savings. However, with the new amortization requirements, savings will be seen as compulsory savings.