A new analysis from Länsförsäkringar reveals that the government’s latest proposal for easier credit restrictions could potentially allow more young adults to purchase their first home. This proposal has the potential to significantly impact the housing market, especially in high-priced areas like Stockholm.
Stefan Westerberg, Länsförsäkringar’s private economist, highlights the positive effects that these proposals could have, particularly in areas with soaring housing prices. However, he also points out that the long-term effects will depend on the trajectory of housing prices.
According to Westerberg, “Easier amortization requirements lower income thresholds, making it more affordable for more individuals to purchase a home. However, the long-term effects are contingent on the development of housing prices. If housing prices increase by more than 11%, the impact on income requirements is nullified, as individuals would still need to have the same income level as required under the current rules.”
He also underscores the risks associated with the new regulations, noting that lower amortization requirements could lead to long-term indebtedness and vulnerability during economic crises.
“With reduced amortization requirements, some individuals may not save at all and instead use their money for impulse purchases, which does not secure long-term financial stability. This could result in some individuals maintaining high levels of debt for an extended period compared to the current rules, increasing vulnerability in personal finances if something were to go wrong in life.”
The proposals, presented in a government inquiry in November, have the potential to reshape access to the housing market for a significant portion of young adults. The impact would be particularly pronounced in Stockholm, where the number of young adults excluded from the housing market could decrease from 73% to 62%, according to the analysis.
“The effects are more pronounced in areas with higher housing prices, such as Stockholm, where many young adults are affected by the stricter amortization requirements that raise income thresholds. With easier credit restrictions, the income requirement is lowered to 34,000 SEK. However, with that income, one would have a higher debt than the ceiling proposed, requiring an exception to be granted for loan approval,” explains Stefan Westerberg.