Think about their housing loans...

Tags: bank; banks; companies; housing-loan; mortgage; risks

In Sweden, Swedbank’s CEO has recommended a law to force regular repayments of relatively large housing loans. Other banks and his owners, the savings banks, were dismayed. Housing loans in Sweden provide huge profit margins for the banks, as they do in Finland. In the past, banks have not suffered much from big losses on housing loans. Few of us default on their payments because we are basically honest and careful. Housing loans are thus seen as a good business by the banks. Why not hold on to those borrowers indefinitely by not demanding faster repayments? And that is totally crazy…

Interest rates are just too low and our banks have forgotten what happened in the US, UK, Spain, Denmark, Ireland, etc, in 2005, 2006 and 2007.

Can anyone explain to me why house prices have gone through the roof in Helsinki and Stockholm? The cost of building certainly has not increased – wages and building supplies have just moved with low inflation. There is lots of empty land in Helsinki and Stockholm – there is no lack of space. Just hop on to a plane like I do every week and look down. It would appear that it is either bankers handing out too many loans or construction companies are pushing up prices. Or is it some alien force from the heavens?

I know at least ten young people (in their 30’s) who have borrowed EUR 300 000 from banks in Stockholm and Helsinki during the last year. That tends to confirm that bankers are one of the big causes for this price increase. Banks are underestimating their lending risks which are borne by these young people living in the city.

New houses are not being built fast enough. Compare past record annual numbers with today’s much smaller numbers. Could it be that the small number of big builders are holding back in the housing market and sit on big land banks? It looks like they may have to stand accused as well because I have not seen any aliens zapping houses recently. And guess who is financing these land banks?

Interest rates are really low now. Swedish housing loans are around 3% to 4% whereas they are at least 1% to 2% lower in Finland. Within a few years, interest rates will increase so get ready now and try hard to reduce the level of debt over the next five years. An increase from 3%to 5% means EUR 6000 each year for those young couples!

Nicholas Anderson