Swedish regulator says may need to do more to cool housing market

[STOCKHOLM] Sweden's Financial Supervisory Authority may need to do more to curtail mortgage borrowing after tighter repayment rules are introduced, but it needs to bed careful to avoid setting of a housing market crash, its chief said on Wednesday.

Record low interest rates coupled with strong economic growth has sparked a borrowing binge in Sweden. Property prices have soared, threatening to trip up the AAA-rated economy.

FSA General Director Erik Thedeen said the Swedish housing market was like a car driving too fast on the motorway. "If we have a speed limit of 110, we are doing 140, 150," he told reporters. "We know that high speeds on the motorway increase risks." The European Commission in February became the latest to warn of housing market risks.

On Wednesday, the FSA handed over proposals to tighten mortgage rules to the government. The tougher repayment rules for new borrowers are expected to go into effect on June 1.

Mr Thedeen, however, said the FSA may need to do more unless the government acts to boost house building or reduce the tax incentives for borrowing.

The FSA is looking into the feasibility of a loan-to-income cap, but Mr Thedeen said the agency needed an expanded legal mandate to make such a change.

A shortage of housing and tax breaks for borrowers have helped house prices nearly quadruple over the last 20 years. Encouraged by negative interest rates and strong growth - 4.1 per cent last year - Swedish households are now among the heaviest borrowers in Europe.

Borrowing grew 7.5 per cent in February from a year earlier. House prices rose around 14 per cent last year.

The central bank has been calling for a broad approach with action in multiple areas to curb the housing market. But Mr Thedeen said Sweden needed to tread carefully. "The current situation is very sensitive," he said. "If we take very powerful measures, then we risk triggering a slump."

REUTERS