Fact: Turnaround in the mortgage market
Mortgage repayments and repayments exceeded new lending in February this year. In March, there was some recovery, with mortgage growth of 2.8 percent, according to Statistics Sweden (SCB). Swedish households’ loans for housing purposes amounted to SEK 4,057 billion at the end of March.
Rapidly rising interest rates and falling house prices are contributing to the slowdown in the mortgage market.
The average interest rate on households’ new mortgages in March rose to 4.02 percent – which is the first quote above 4 percent in just over eleven years. The interest rate for mortgages with fixed terms of 1–5 years rose on average to 4.09 percent in March. This can be compared with 1.84 percent a year earlier, according to Statistics Sweden.
Inflation and higher interest rates are eating up an increasingly large part of the budget for Swedish households. The development has changed how we behave as bank customers, according to the heavy-hitting bank directors that TT spoke to in connection with this week’s quarterly reports.
Few choose to request a deferment with the amortization requirement, and many instead take savings to pay off the mortgage when interest rates start to rise, according to Handelsbanken’s CEO Carina Åkerström. Archive image
Carina Åkerström CEO of Handelsbanken:
— Interest is a large part of household costs, so it is clear that you contact your bank. Our customers do that too, says Åkerström.
— Amortization is definitely a very obvious effect of the situation. The biggest part is that you use your own funds and amortize and pay off some loans. I don’t think it’s strange in this situation, she adds.
Handelsbanken is one of the largest lenders on the Swedish mortgage market. For borrowers with variable interest rates – most of them – the interest rate hike has already been felt. Other borrowers take up the issue when the term ends and the loan has to be rescheduled, according to Åkerström.
— Many households go from a relatively low interest rate to a much higher interest rate. It will create stress.
However, she sees no drama when it comes to deferment of amortization requirements, which is a possible way out if the situation becomes too difficult for highly indebted households.
– There are very few, almost negligible, who ask for a reprieve. You adjust your debts with deposit funds and thus acquire margins.
Nordea’s CEO Frank Vang-Jensen describes the competition as fierce in the stagnant Swedish mortgage market. Stock photo.”Will turn”
Frank Vang-Jensen, CEO Nordea:
— When inflation – that is, the increased cost of living – and interest rates increase simultaneously and very quickly, it affects everyone in society. The focus is on what can be changed. Should we travel less? What can we consume less of? I think everyone has those discussions – they are going on in companies and they are going on in households, says Vang-Jensen.
He does not see any changed behavior when it comes to haggling over interest rates and changing banks. He thinks it is connected to the fact that there are small differences between the alternatives.
— Competition is fierce in the mortgage market.
Swedish households are hit faster than many other Europeans when interest rates rise, as a result of high indebtedness and a large proportion of variable interest rates. Amortizing is a good strategy to deal with it, according to Vang-Jensen.
— Amortization is healthy. Then it is the case that people and families are at different stages in life. There may be periods where it is great not to amortize. What we need is flexibility.
He does not believe that the inflation and interest rate shock will lead to any deeper crisis either for households or the economy.
— It will be a bit difficult, because the interest rates are starting to bite now. But it will turn around. I am completely convinced of that.
Those who have defaulted have started repaying mortgages, according to SEB’s CEO Johan Torgeby. Stock Image Savings with longer bond
Johan Torgeby, CEO SEB:
SEB notes that many customers have started to lock their cash registers in savings accounts with longer lock-in periods and higher interest rates this year.
— It’s happening now. We can see that very clearly. It takes time for an economy to adapt to such a sharp and rapid change in interest rates, says Torgeby.
He sees three typical SEB customers, who act in different ways when prices and interest rates skyrocket.
— There are those who are less financially strong who tend to reduce their savings and use the money to consume.
— Those in the middle don’t move around much and those who are well off tend to start amortizing if they can – instead of saving money. They can pay off loans that they perceive as negative for the private economy, because now the cost of borrowing is three times as great as a year ago.
For the bank, the trends are seen in the form of an increased tendency to repay loans, but also reduced savings and more money for consumption.
Jens Henriksson, CEO of Swedbank, sees a movement of money to savings accounts with longer lock-in periods. Stock Image Investments in equity funds
Jens Henriksson, CEO Swedbank:
— Private customers have reduced their transaction accounts. We see that when extra amortizations have been made. It’s quite tough financially and then you have slightly smaller margins, says Henriksson.
Swedbank is one of the very largest in the mortgage market in Sweden. And among the customers who can afford it, many also invest more in equity funds than before, according to the Swedbank manager.
— If you look at our savings accounts, we have seen a movement, where many have moved money from what we call directly accessible savings accounts to unlocking the money. It’s not that weird. After all, we have a very attractive offer there, if you deposit the money and lock it – very many customers choose to use it.
When it comes to changing banks or the attempts to bargain down the interest rate, he confirms that the situation is stable.
— It is a tough and competitive market and you can see that our margins on mortgages have decreased by 14 points (0.14 percentage points) during the quarter. So it’s about taking the best offer and I think we have that – the best overall offer.