A presentation held by Lord Adair Turner from INET at Global Utmaning's and the Swedish House of Finance's seminar "Combating the Debt Addiction" at the Stockholm School of Economics, Thursday May 22, 2014.

1. Finansdepartementet
Challenges with high household debt
levels - a Swedish perspective
Minister for Finance Anders Borg
Thursday May 22, 2014

2. Finansdepartementet
Household debt and post-tax
interest expenditure
Per cent of disposable income
Source: Riksbank

3. Finansdepartementet
0
50
100
150
200
250
300
1995 1997 1999 2001 2003 2005 2007 2009 2011
SE FI DK
NL IE ES
An international phenomenon
Households’ debt to disposable income ratio, per cent. 1995-2011
Source: Eurostat

4. Finansdepartementet
High debt ratios for mortgage borrowers
Data from July 2013. Source: Riksbank

5. Finansdepartementet
Debt-to-households’-disposable-
income ratios in different regions
Data from July 2013
Source: Riksbank

6. Finansdepartementet
Average loan-to-value ratio for new loans
Per cent
Source: FSA

7. Finansdepartementet
What can explain the rise in debt levels?
- Rising household incomes and lower taxes
- Low real interest rates
- Low construction means limited supply
- Conversion of rental housing into condominiums
- Increased demand for central location means higher
average home prices

8. Finansdepartementet
Risks from high household debt
• Macroeconomic – if interests rates rise dramatically,
and/or home prices drop, consumption could be
negatively affected and hit aggregate GDP growth
• Financial sector - lower consumption and weaker
growth may in turn cause credit losses in the banking
system
• Individual households - risks of insolvency of
individual households with small financial margins

9. Finansdepartementet
Households have strong balance sheets
Household assets and liabilities in percent of disposable income
Source: Riksbank

10. Finansdepartementet
Growth rate of household loans
Source: Statistics Sweden

11. Finansdepartementet
The Swedish Government’s measures to dampen
household credit growth
• Higher risk weights on mortgages
• Loan-to-value cap (LTV)
• Individual amortisation plans
• FSA analysis of banks’ tests of household
credit worthiness

12. Finansdepartementet
Higher capital requirements on large banks
Core equity requirements in percent of risk-weighted assets
The November 2011
argreement: CET1 > 12%
Regulatory basic capital
requirements
Institution specific pillar 2
requirements
Mortgage risk weights 15%
Mortgage risk weights 25%
Systemic risk in pillar 2
Systemic riskbuffer
Countercyclical buffer (not set yet)
Capital conservation buffer
The FSA:s new policy:
CET1 > 16,4%

13. Finansdepartementet
Swedish housing construction low
Number of housing starts per 1 000 inhabitants

14. Finansdepartementet
… but housing construction is picking up
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Småhus
Hyresrätter
Bostadsrätter
Flerfamiljshus totalt
Nybyggnad totalt
OmbyggnadHome reconstruction
Rental housing
Source: The Swedish National Board of Housing, Building and Planning
Forecast 2015:
38 000 homes
Single family houses
Apartments total
New homes total
XXXXXXX

15. Finansdepartementet
Potential hurdles before a building
project can start
Appeals
Noise regulations
Infrastructure
”NIMBY”
Lack of municipality plans and land-use plans
National interest
Planning
processes
Lack of a uniform,
national application
of rules and
regulations

16. Finansdepartementet
Government strategy to improve the
housing market
• More efficient use of the stock of dwellings
• A better functioning housing market
• Shorter time span from conception to
finished home

17. Finansdepartementet
Summing up
• Household debt levels are high, but so are asset
levels
• A number of measures taken to stimulate gradual
downward trend in debt-to-income ratios
• Measures taken to address supply side
restrictions in housing market
• Continue close monitoring of debt developments,
prepared to act if trends go the wrong way