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STOCKHOLM: Sweden’s banks, which are among Europe’s best capitalised, are warning that excess reserves can’t cool a property market at risk of overheating, as they urge the government to address a chronic under-supply of housing.
“Just to increase capital ratios is the wrong tool,” Nordea Bank AB CEO Christian Clausen said on Wednesday in an interview in Stockholm.
“If you have too little construction of new homes and you have too much demand, then there is an imbalance, and that has nothing to do with credit supply.”
Swedish regulators have taken a number of steps to try to stem growth in household borrowing and to cool house prices amid concern a bubble is developing. Measures have included capping mortgages at 85% of property values and tripling risk weights on banks’ mortgage assets.
While the mortgage cap helped slow loan growth, borrowing has started to accelerate again and house prices are still climbing. That’s left Swedes with a record debt load equivalent of more than 170% of their disposable incomes.
Apartment prices, which have more than doubled since 2000, increased 14% in the 12 months to August, according to Svensk Maeklarstatistik, which publishes monthly data on Swedish real estate. The price of single-family houses had risen 4% since August last year, it said.
State-owned mortgage bank SBAB warned on Oct 18 that prices are likely to continue rising and that there was a risk of overheating.
The government’s response has been to blame the banks. Finance Minister Anders Borg has repeatedly threatened to raise capital requirements again next year to cool the housing market.
Borg has also expressed a preference for addressing housing market imbalances by forcing banks to hold bigger buffers rather than by asking households to amortise their debt, as proposed by the financial regulator.
Borg said last month that a mortgage amortisation requirement isn’t high on the agenda for the coming year and that there are “more natural” ways to curb household debt. This month, he ruled out limiting homeowners’ access to tax deductions on interest rates.
Michael Wolf, the CEO of Sweden’s biggest mortgage lender Swedbank AB, on Oct 22 called on the government to address imbalances in the housing market by increasing the supply of housing. He said the approach would be more effective than raising capital requirements.
“We want to help our customers buy a home and will gladly provide financing for new construction,” Wolf said in the bank’s third quarter report.
“But we are not willing to take part when the same properties are mortgaged at ever increasing levels. The increased capital requirements on banks are not an optimal way to provide a solution to Sweden’s problem of too little housing, which damps potential growth.”
Sweden’s rising house prices stem in part from a lack of rental properties in its biggest cities after about 160,000 properties across the country were converted into owner-occupied flats since 2000, according to data from Statistics Sweden.
Construction is also failing to keep up with population growth. While greater Stockholm added 164,400 residents in the past five years, only 4,165 housing units were built in the Stockholm area in the first half of 2013.
The government introduced a mortgage cap in October 2010 that helped slow credit growth to a 20-year low of 4.5% last year, from a pace of more than 10% in the five years to 2008. Yet, the pace of borrowing has started to accelerate again. Lending to households rose 4.8% in August compared with 4.7% in June and 4.6% in April. — Bloomberg
This article first appeared in The Edge Financial Daily, on October 25, 2013.
