Opinion of the European Central Bank of 24 March 2016 on mortgage amortisation requirements (CON/2016/18)
Date: 2016-03-24
Institutions: European Central Bank
Subjects: Sweden, amortisation, financial stability, household budget, household consumption, indebtedness, mortgage, real estate credit

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 24 March 2016 

on mortgage amortisation requirements 

(CON/2016/18) 

Introduction and legal basis 

On 5 February 2016, the European Central Bank (ECB) received a request from Finansinspektionen (the 

Swedish  financial  supervisory  authority)  for  an  opinion  on  a  draft  proposal  for  a  regulation  establishing 

mortgage amortisation requirements (hereinafter the ‘draft proposal’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the sixth indent of Article 2(1) of Council Decision 98/415/EC1, as 

the draft proposal relates to rules applicable to financial institutions insofar as they materially influence the 

stability  of  financial  institutions  and  markets.  In  accordance  with  the  first  sentence  of  Article 17.5  of  the 

Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.  

1.  

Purpose of the draft proposal 

1.1  The overall purpose  of the draft proposal is to limit household indebtedness. The rules set  out  in 

the draft proposal would  apply to new mortgages for the domestic housing market in Sweden. All 

firms  subject  to  Finansinspektionen’s  supervision  would  be  covered  by  the  regulation.  Hence,  it 

would apply to virtually all firms providing loans, i.e. banks, savings banks, cooperative banks and 

other credit institutions.  

1.2  According  to  Finansinspektionen,  a  rising  share  of  new  mortgage  debtors  in  Sweden  take  out 

mortgages that exceed 50 % of the value of the home. In addition, a large percentage of loans in 

Sweden  are  not  amortised  at  all  but  prolonged  at  maturity.  Finansinspektionen’s  data  for  2014 

records  that  only  60  %  of  households  made  principal  payments  on  their  mortgages.  Moreover, 

some  households  have  unduly  optimistic  expectations  of  future  housing  prices  and  interest  rate 

levels. Finansinspektionen’s data shows that overall household indebtedness is high in relation to 

disposable  income.  This  poses  a  threat  to  the  Swedish  economy  because  highly  leveraged 

households are found to be sensitive to economic shocks, such as unexpected changes in income, 

housing  prices  or  interest  rates.  Finansinspektionen  considers  that  the  main  risks  lie  with 

households whose mortgages exceed 50 % of the value of the property securing the mortgage. 

1.3   The draft proposal provides that all new loans granted for housing purposes (i.e. a leasehold right 

for  a  property  or  site  which  is  intended  for  housing  for  one  or  two  families,  or  a  condominium  or 

1  

Council  Decision  98/415/EC  of  29  June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42).  

  
 
 
 
                                                 
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apartment  owned  by  a  housing  cooperative)  on  or  after  1  June  2016  and  secured  by  a  property 

must  include  provisions  on  amortisation  requirements  if  the  mortgage  exceeds  50 %  of  the 

property’s market value.   

1.4  The  draft  proposal  also  provides  that  the  amortisation  requirements  apply  to  existing  loans  if  the 

existing  loan  amount  is  increased.  The  amortisation  amount  is  calculated  on  the  basis  of  total 

indebtedness (i.e. existing indebtedness together with the increased loan amount).  

1.5  As  risks  increase  with  higher  household  indebtedness,  the  draft  proposal  adopts  a  progressive 

amortisation  requirement  according  to  which  new  mortgages  exceeding  70 %  of  the  property’s 

market value must be amortised by at least 2 % per year of the total loan amount, and by at least 

1 % per  year of the total loan amount when the new mortgage amounts to more than 50 but less 

than 70 % of the property’s market value.  

1.6 

In order to avoid the regulation increasing cyclical fluctuations, the draft proposal provides that as a 

general  rule  the  market  value  of  a  property  should  not  be  reassessed more  than  once  every  five 

years.  However,  a  revaluation  of  a  property  may  be  performed  more  frequently  than  once  every 

five years if there has been a considerable change in the property’s market value for reasons other 

than  the  general  trend  in  house  prices  e.g.  because  the  property  has  undergone  extensive 

renovation, conversion or extension. 

1.7  The  draft  proposal  includes  an  option  for  lenders  not  to  apply  the  amortisation  requirements  in 

relation  to  loans  granted  to  finance  the  acquisition  of  newly  constructed  homes.  A  borrower 

acquiring  a  newly  constructed  home  would  be  exempt  from  the  mortgage  amortisation 

requirements. In addition, the draft proposal provides that exemption shall be given on a temporary 

basis  in  a  number  of  situations  including  unemployment,  sickness  or  death  in  the  family.  Such 

exemptions  shall  cater  for  special  circumstances  where  a  borrower  is  unable  to  amortise  the 

mortgage. These exemptions are at the discretion of the lender and not specified further in the draft 

proposal.  

1.8  Finally,  regarding  the  legal  basis  for  the  draft  proposal,  the  ECB  understands  that  a  proposal  for 

new rules regarding mortgage amortisation requirements is contained in a Government Bill pending 
before  the  Swedish  Parliament  (Riksdag)2.  According  to  the  preparatory  work  to  the  Government 

Bill,  there  are  reasons  for  the  Government  to  combine  an  authorization  to  Finansinspektionen  to 

issue  more  detailed  regulations  on  amortization  requirements  with  a  requirement 

that 

Finansinspektionen  must  obtain  the  Government’s  consent  before  such  regulations  enter  into 
force.3  

2  

3  

Proposition  2015/16:89.  In  the  proposal,  it  is  proposed  that  a  new  legal  provision  regarding  an  amortisation 
requirement will be introduced into Chapter 6, section 3b of the Swedish Banking and Financing Business Act (Sw. 
lag (2004:297) om bank- och finansieringsrörelse. 

A  requirement  for  authorized  authorities  to  obtain  the  consent  of  the  Government  is  generally  required  when 
proposed  regulations  can  result  in  essential  costs  for  the  State,  a  municipality  or  a  county  due  to  a  generally 
applicable  regulation  (Regulation  (2014:  570)  on  the  Government's  consent  to  the  adoption  of  certain  regulations) 
(Sw. Förordning (2014:570) om regeringens medgivande till beslut om vissa föreskrifter). 

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2.   General observations 

2.1  The ECB understands that house prices and household indebtedness have increased markedly in 

Sweden  since  the  mid-1990s,  while  the  general  propensity  to  amortise  mortgage  loans  has 

decreased. Against this background, the ECB welcomes the core objectives of the draft proposal, 

namely to limit household indebtedness and mitigate the risks to financial stability associated with 

high indebtedness. 

2.2  The ECB refrains from making any observations regarding the possible institutional implications for 

Finansinspektionen’s  operational  independence  as  a  macroprudential  authority  arising  out  of  the 

potential  requirement  that  Finansinspektionen  must  obtain  the  Government’s  consent  before  any 

regulations on amortization requirements enter into force. 

This opinion will be published on the ECB’s website.  

Done at Frankfurt am Main, 24 March 2016. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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