Amortization- What happens?

Sammanfattning: Abstract The amortization requirement stipulates that all new mortgages will be amortized in the interval between 50-70 per cent of the residence value; an additional, stricter, amortization applies if the mortgage exceeds 450 per cent of the individual´s gross annual income. The stricter amortization requirement is brand new, implemented the 1st of March 2018. This action was introduced when the Swedish Financial Supervisory Authority (Finansinspektionen) concluded that the aggregate debt level in Sweden must be contained. The amortization requirement is designed to increase the resilience among Swedish households against financial crisis. The effects of the amortization requirement is fiercely debated and of great public interest because it concerns everyone who has or wants to purchase a residence. The focus is to investigate the Loan-to-Income ratio and the “Left-to-live-on” –Calculation (KALP). Using a comparative method the Loan-to-income ratio and the KALP- calculations are compared between all 290 municipalities and across age groups. The result shows the different effects the amortization requirement has on different regions in Sweden. The amortization requirement will affect the larger municipalities and the adjoining suburbs the most, as well as the younger and the older age groups, causing a decrease in residence prices and lower demand for mortgages. This result is explained within the context of the permanent income hypothesis, life cycle models of consumption as well as a spatial consideration of income growth. The initial effects of the amortization requirement has been a drastic decrease in housing prices and the long –term goal is a more sensible loan-to –income ratio level in the country. Key Words: Amortization, Loan-to-Income ratio, Finansinspektionen, KALP