Swedes’ loan party continues
Despite the fact that politicians and economists are appalled at how much money the Swedes lend, the loan party continues as usual, just as it has for several years. Yesterday, CSB presented new financial market statistics that showed that the growth rate for lending to households was 7.5% in January 2016 compared to the previous year. Mortgages, which account for the vast majority of Swedes’ loans, increased by USD 209 billion and the annual growth rate for mortgages was 8.4%.
The mortgage party is approaching USD 3 billion
In mid-2015, total mortgage lending was USD 2.500 billion and the household debt ratio passed 170%. If the growth rate for mortgages continued to be 8.4%, the $ 3 billion mark would be reached as early as 2017, but Snap & Save assumes that we will not end up there as the new repayment requirement is likely to apply in June 2016.
Over 170 percent debt ratio
And so to the Swedes’ high debt ratio. The debt ratio is your disposable annual income in relation to your debt. For example, if you earn USD 120,000 / year and have a loan of USD 120,000, your debt ratio is 100%. If you have a debt ratio of 170% on this income, it means that you have a debt of USD 207,000. Given that the average debt ratio was 107 – 108% in 2000, one can understand that 170% is quite a lot, and it is actually even higher today as mortgage growth continues to increase.
The danger with the high debt ratio is that households can take a substantial hit on the day when interest rates turn upwards, which is why the government and Parliament want to anticipate the trend by introducing mortgage repayment requirements.
SMS loan – a petitess in this context
When you talk about the Swedes ‘huge debt burden, it is almost always mortgages you talk about, not about private loans and other loans without collateral because they make up only a small part of Swedes’ debts.
If we look at sms loans, the Swedes could make interest deductions of about USD 120,000 million for sms loans in 2015, which shows that the total interest cost for all borrowers was USD 400,000 the same year as the interest deduction is 30%.
Even if the Swedes paid 33% of the sms loan amount in interest fee, the total loan amount would not be higher than 1.2 billion and it is pittable in this context, more specifically 0.048% (not even a two hundred percent) of what the Swedes had in mortgage in mid-2015.
This clearly shows that the hangover after Sweden’s big mortgage party will not be about sms loans and private loans but about mortgages, which is what is the biggest loan trap today. Yes, it is not only high interest rates for fast loans that are a danger, the low interest rates for mortgages are an even greater danger.