# Swedish banks allow 70% LTV , interest only indefinitely!



## Brendan Burgess (1 Aug 2014)

I have often argued that a mortgage is sustainable for the bank and for the borrower while the borrower can pay the SVR interest on the mortgage. 
I have often quoted the fact that the Swiss banks will lend 67% of the value of the home, interest only , indefinitely. 

I wasn't aware that the Swedish Banks were lending up to 75% of the house value indefinitely. They have reduced this to 70% recently, and are under pressure to reduce it further.   

A Swedish mortgage has two parts 
The First mortgage has a maximum LTV of 70% and there is no requirement to pay the capital.
The Second mortgage which is the bit which exceeds 70% should be amortised over 10 to 15 years. 

Riksbank has a comprehensive study of the Swedish mortgage market and its role in the financial system.  As it's a very long report, I have extracted the relevant sections on the attached Word file. 



> *...  the average  amortisation period for the first mortgage stock (i.e. the bit with the LTV up to 75%)  was about  148 years*


From Table 1.5 , it can be seen that just over 70% of first mortgages are interest only.




> mortgage contracts  often run for 30-50  years and, theoretically, this means that the loan should have been repaid by the time the contract  expires. In practice, the rate of amortisation varies from bank to bank and from borrower  to borrower, and it is not unusual for the amortisation rate to mean that it will take more than[FONT=&quot] 1[/FONT][FONT=&quot]0[/FONT][FONT=&quot]0 years to repay a loan.[/FONT][FONT=&quot]33[/FONT][FONT=&quot]  [/FONT][FONT=&quot]T[/FONT][FONT=&quot]his [/FONT][FONT=&quot]m[/FONT][FONT=&quot]a[/FONT][FONT=&quot]y mean that there is a residual debt when the contract  expires and that the borrower  must renew the contract. An interest- only mortgage means that the household only pays interest on the loan until the day the household sells the property  and the bank demands payment for the loan. [/FONT]




*Interest only mortgages are popular, because borrowers get tax relief on the mortgage interest 

*


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## Brendan Burgess (1 Aug 2014)

They have three types of amortisation: 

1) The most common type is where the borrower pays the same amount of capital in each repayment. As the loan is gradually being repaid, the interest cost falls as does the total repayment. 
2) The capital repayment starts low and gradually increases. 
3) The Irish system, where the monthly repayment remains constant over the term of the mortgage and so the capital element increases every month, while the interest element decreases 

2) and 3) would have a very similar result.


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## Branz (1 Aug 2014)

Interesting piece of analysis, thank you for it.
Just wonder is there any data in the report for home ownership as opposed to renting?

Was up there earlier in the summer and got the impression that rental was more popular than here.

One argument for "I" only is  that with the high personal tax rates there is not enough after tax income for the "P"


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