After years of ultra-low borrowing costs, the pandemic and the Ukraine war have served up a toxic cocktail of high inflation and rapidly rising interest rates to many countries.House prices in Sweden have almost quadrupled in the last 20 years, easily outstripping wage growth, boosted by generous mortgage tax relief, almost non-existent real estate taxes and a rental market with limited supply because of tight regulations.
Many home-owners are already struggling with higher mortgage repayments alongside surging food and energy prices – even though the full effects of interest rate rises over the last year have yet to be felt. The central bank expects further rate increases in the coming months. Markets expect borrowing costs to peak at 4 percent , up from 3 percent currently.
While Sweden is not alone in seeing big house price falls, its households are almost uniquely sensitive to interest rate hikes because more than half have floating rate mortgages. “We have 15 years to pay back and it was all planned in a way that we could pay back even if interest rates rose,” she said.
All the main political parties agree an overhaul of mortgage tax relief is needed, but none are prepared to give their rivals a stick to beat them with when elections come around.Financial regulators have introduced tougher lending practices and tightened mortgage repayment rules. Sweden’s banks are among the most strongly capitalized in Europe – partly as a result of worries about the housing market.