Does an amortization requirement affect household indebtedness? : A study of Sweden and Finland

Sammanfattning: The level of indebtedness in Sweden has been rising substantially and is well above thelevels prevalent in other countries. Consequently, the government introduced anamortization requirement in 2016, which was further strengthened in 2018, in order tolower the risk that a high level of debt might constitute for both households as well asfor the economy. We analyse whether mortgage repayment has an effect on the level ofindebtedness and we contribute to the present studies by investigating the effect of anamortization requirement by predicting long term consequences. In order to answer ourresearch question, data from Sweden and Finland is used, two countries that despitemany similarities have very different mortgage repayment cultures. By conducting apanel data analysis, we prove our hypothesis that amortization has a significant effect onthe level of indebtedness. However, we do also discuss that cultural factors might becrucial in determining the actual effects of a mortgage payoff requirement. Yet, weconclude that amortization might be a good start to decrease the high debt level inSweden.