We protect ourselves against bad weather on holiday, put on a bicycle helmet and insure the house against fire. But when it comes to mortgages, the Swede takes risks.
– We are quite good at thinking about risk in other things, but here we seem to completely ignore risk. And that is unfortunate, says Riksbank Governor Erik Thedéen.
On Thursday, the Riksbank raised the interest rate once again. In just over a year, it has been raised from 0 to 3.75 percent and the Riksbank has already said that there will be at least one more increase this year. For many households, the wallet is really hurting right now.
– Most people can do this without having to leave home. But many will find it tough, says Erik Thedéen.
– Many households have taken advantage of this, so that they can cope with higher interest rates, but it has been with a different level of consumption than they have today.
Swedes extra sensitive to interest rate increases
The Swedish mortgage market stands out compared to other countries. Many people have variable mortgages and those who choose to commit the loans often do so in a short time. This makes the Swedes sensitive to interest rate increases.
These are choices that households make, but they must be made on rational grounds, says Thedéen.
And that is perhaps where it falls short, he reasons. The picture has been that interest rates will be low for a long time and that it always pays to be flexible.
– What we missed was to say that you can think of this as insurance – I don’t think my house will burn down, but I still have fire insurance. And I think the interest rates will be low, but I might still tie up some of my loan, because I don’t know. I think that is a wise view of how to reason, says Thedéen and continues.
– If you have a lot of money in the bank or rich parents, you can afford to take the risk. But others should think more about what their own finances can withstand.
“The world’s chance now”
– We have the world’s chance now, which may sound tough given that many are having a tough time, but we have a chance to take this lesson with us and incorporate the insurance concept into our mortgage decisions, says Thedéen.
The krone against the euro
A complicating factor in the fight against inflation is the weak krona. It makes imported goods more expensive and contributes to higher prices in Sweden.
Possibly, the weak krona exchange rate has also contributed to more people now considering exchanging the krona for the euro. A barometer conducted by DI showed this week that support for the euro is increasing in business and that a clear majority now wants the euro.
The theme emphasizes that a transition to the euro is a political decision.
– It is definitely not a question for the Riksbank and the discussion should not be based on the current krone exchange rate. That cannot be the reason to join, he says.
– But it is clear that it is relevant to discuss given that Sweden is one of the few countries that does not have the euro as its currency.
And if we are to join, it must be preceded by a broad economic discussion, he emphasizes, where pros and cons are weighed against each other. And where the current krone rate does not play the main role.