In the report titled Young & Mortgages, SBAB analyzed how amortization requirements and discount rates affect young people’s chances of obtaining mortgages.
The conclusion is that opportunities for young people to borrow to acquire a first home have been significantly affected by the introduction of consumption requirements. In the Stockholm region, 10 percent of all people between the ages of 25 and 29 were excluded, and in the Gothenburg region 5 percent. In total, there are about 23,000 young people in the Big Three Counties alone, SBAB writes.
– Our analysis clearly shows that opportunities for young people to borrow for a first home have been negatively affected by consumption requirements more than by the image provided by Finansinspektionen. This should be reasonably taken into account in an overall policy assessment of consumption requirements. Not least in making sure that their original motivation doesn’t hold up, they also have social and economic costs and a dubious distribution profile, says SBAB chief economist Robert Puig in a press release.
But the discount rates that banks use also play a role. These are used to test the ability of borrowers to repay at a higher interest rate level and are currently averaging 7 percent.
According to SBAB, a reduction in the discount rate from 7 to 5 percent would give an additional 21,000 young people in Sweden’s three urban areas an opportunity to purchase an average of one.
As it turns out that discount rates are a major constraint on lending to young people as well as interest rates have decreased in line with the trend over time, it is important to assess whether they can be reduced but rather they should be reduced. We think there is room for banks to cut the discount rate for at least a while. The level can then be revised if the interest rate appears to be heading upward, says Robert Puig.
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