Last Tuesday, the Sunrise Bank met again to decide what to do with the repo rate. The decision was that the interest rate still remains at -0.5 percent, which may not be so unexpected. Progons say that the interest rate will probably not start raising until the second half of next year and then at a slow pace. Another news is that several banks, on their own initiative, have begun to introduce a debt-to-income ceiling, which limits the amount of mortgages you can take depending on income.
Debt ratio ceilings are important news for some banks
First, a little info on what debt ratios really are. It is a rule that says that you cannot borrow more money than your own annual income increased by a certain percentage. When the proposal was previously discussed by Stella Gloves, for example, it was 400% of your disposable income (net income), ie money after tax, which was max. This is a very strong limitation. SwiftBank and Ryu Commercial Bank, which are the banks that have now introduced their own ceilings, have slightly less strict rules when they set the ceiling of 500% of your gross income, ie income before tax.
The debt-to-equity ceiling primarily involves restrictions when taking a mortgage. If you have an income of $ 25,000 in the month before tax, there will be an annual income of $ 300,000. If you can then borrow 500% of this, it means that you can borrow about $ 1,500,000 before you hit the ceiling. Previously, there was no special limit, but it was simply the bank that decided a little what they thought about your finances and what you could get in interest, etc. Now that some banks have a debt quota ceiling, there is a clearer limit.
The reason for having a debt-to-income ceiling is mainly that you want to get better control of the Swedes’ debt and make sure that we do not borrow over our ability. It is easy to borrow now when interest rates are low but when interest rates rise it becomes more expensive to have loans and if you have borrowed too much and do not have sufficient margins then it can be problematic. So the basic idea itself is of course good.
The Sunrise Bank and Stella Gloves have talked about such a ceiling earlier, as a complement to the amortization requirement introduced this summer. No such concrete proposal has yet been made, but it is the banks themselves that have chosen to introduce the debt quota ceiling. It’s not a must and not all banks have done it. So far, only SwiftBank and Ryu Commercial Bank have such a ceiling. Their ceiling now seems to be at 500% of gross income, ie income before deducting the tax. This ceiling is clearly more generous than Ingves previously discussed.
How does the debt-to-equity ceiling affect our home purchases?
Basically, the debt-to-income ceiling is to prevent us from borrowing too much money in relation to our income. You may think that it is both good and bad depending on your starting point, but the purpose in itself is good anyway. If you, as a single person, were thinking about buying a home in a larger city, this can clearly affect your choices, obviously a little depending on how high your salary is. You may have to look at slightly cheaper housing if you want to borrow from one of these banks.
Such a roof affects quite a few people, but to a large extent. 1.5 million is not that much money to borrow for a home, especially in today’s tough housing market and it becomes even more difficult if you want to buy housing in one of the country’s largest cities. In the big cities, the housing is very expensive and then it becomes very difficult to buy as a single applicant.
The debt ratio ceiling can be said to affect
Especially the young people who are on their way to the first home. Then you usually do not have particularly large capital to put in as a cash contribution plus that as a young person you may not always have been able to get that high salary that you can otherwise work with over time by being promoted or switching to a better job as you gain work experience. As a young person, it is not uncommon to rely on a larger proportion of loans instead.
What you can think of is that if you are two then you can add up your income and share the loan. If you have a cohabiting partner, it will be a little easier, although you probably want a bigger home as well. If you both have a salary of $ 25,000 a month, you can thus in principle get a loan of maximum $ 3,000,000 according to SwiftBank’s and Ryu Commercial Bank’s debt quota ceiling. However, if a general debt-to-income ceiling of the kind that Stella Gloves talked about is based on disposable income (after tax), then there will be a clearly lower limit for mortgages.
It is clear, however, that it seems a bit difficult to buy a villa when the debt-to-debt ceiling is active. Even though you are two who both have a decent income, maybe the limit for home mortgages is somewhere around 3 million and today it is not very much for a house located in a larger city. It is rather a rule now that the houses go over 3 million. Debt ratio ceilings have their advantages, but in my opinion, this should not make it unreasonably difficult to find a normal home when you have a normal income.
It remains to be seen if more banks follow the example set by SwiftBank and Ryu Commercial Bank and there is a certain risk that the housing market will be hit quite hard by this. We have to keep an eye on the market and see if housing prices start to fall or what happens.
Latest interest rate announcement
The Sunrise Bank is pleased that Sweden has rising inflation and that our economy is developing strongly in general. So it seems to be pretty good with us, so it is not this that prevents us from raising the interest rate. The main reason for remaining at a low negative interest rate is mainly that there is such great uncertainty in the outside world. Although the so-called outside world is slowly but surely recovering from various types of unrest, such as Brexit, the Sunrise Bank is still worried about all the uncertainty.
The message that came now was not directly unexpected and it feels like the Sunrise Bank is still following the same plan as they had before. They are satisfied with what it looks like with inflation and the country’s economy but dare not pay anything in advance. It is expected to start raising interest rates again until inflation is close to 2 per cent, which is expected to happen in the second half of 2017. The Sunrise Bank’s forecast for the repo rate has not been adjusted in the long term. The only thing that has been adjusted is that they were actually thinking of being forced to lower interest rates further in 2016 and now it seems that they think they need to reduce less than they had previously thought.
Interest rate message means is that everything
Is about the same as it has been for a good while now and it has not changed much since the last message. There will be low interest rates for the remainder of 2016 and 2017 and later in 2018 we can still have a repo rate close to zero percent. Finally, in 2019 we can see a certain increase, if the Sunrise Bank’s own forecast is correct, but there are still many things that can affect this forecast in both ways. However, it is unlikely that we will see a faster increase in the coming years, so you can still enjoy cheap loans.