There is some concern about the interest rates (currently at -0.5%) fueling a housing bubble in Sweden. This article at Fidelity states:
In a bid to track the ECB, Sweden has cut its interest rate below
zero, a radical move that involves charging banks to hold some types
of deposits with the aim of encouraging them to lend.
Similar trends have emerged in other small, open economies, such as
those of Denmark and Switzerland, which also have subzero rates.
In Sweden, the central bank governor has warned that the low rates
could be creating a housing price bubble.
A reason why this risk exists in particular for Sweden is because the regulation has allowed the borrower to pay only the interest on common mortgage types, and since the interest rates have been very low for many years, the sizes of these payments have been low.
These mortgages are referred to as "Swedish style mortgages" in this report published by the Swedish Central Bank (dated April 2015).
Overall the situation has stimulated borrowing and fueled the growth of the overall indebtedness of the households. Above report states on p. 4 that:
Sweden, in particular, has seen household indebtedness rise from 90%
of disposable income in 1995 to 172% in 2014
Current situation is still as described as on page 14 in the Sweden - Selected Issues paper published by the IMF (dated August 2014), shown in below image.
On p.15 this IMF report states that:
- If progress under the current voluntary approach remains limited, a binding maximum amortization period for new mortgages would be
helpful. Swedish banks are working to raise amortization through
voluntary means. However, the picture remains largely unchanged. The
share of new mortgages granted in 2013 that has an amortization plan
has remained broadly constant from 2012. And, of the existing mortgage
stock, a significant 40 percent of households either increased or did
not decrease their debt in 2013. For the remaining 60 percent of
households, it would take 100 years to fully pay down their debt if
they continued to amortize at current speeds.
In fact they attempted to regulate the mortgages last year but according to this article it looks like the proposed changes were rejected by an appeals court. The article states that
Under the original plans, customers would have been asked to pay two
percent of the value of their mortgage every year until they had
repaid 30 percent of the loan. They would then have been required to
pay at least one percent a year until they hit the 50-percent mark.
But the watchdog backtracked after an administrative court of appeal
in Jönköping in southern Sweden suggested that the proposed changes
were not supported by Swedish law.
I am not sure however if they were able to pass that law later in some modified form.
Understandably the current level of indebtedness poses a large risk for the banks in the event of a downturn on the housing markets. However the already existing debt levels (as discussed in this report) in comparison to disposable income may make it difficult to implement drastic changes to the regulations.
The reason for the interest-rate cut you asked about seems to have been to avoid further deflation. One of the consequences of this has been, according to this article, an overall increase in house prices. So while at least two of the symptoms of a housing bubble (high prices and high levels of household debt) are present in Sweden, there are also factors that play against a US-style mortgage crisis, such as:
- The ability of households to make interest-only mortgage payments
without penalty for an extended period.
- Large amounts of recent immigrants (refugees from mainly the middle
east) that will require housing. In addition to this Sweden already
had low levels of new construction even before the latest influx of
- The relatively small size of the country; people tend to not move
geographically as far away as in USA for reasons such as employment and may stay at a particular address longer.
Update: According to this article, Sweden did change the maximum length of a mortgage to 105 years earlier this year.