Amortisation requirement unlikely to have a material impact on Sweden's home prices

In sweden, apart from an amortization requirement, which likely will be implemented as from May 2016, no important measures are expected on the macrofinancial stability front. 

There are at least three reasons why the amortisation requirement is unlikely to have a material impact on home prices and credit growth in the years ahead. First, households have already increased their amortisation sharply in recent years, implying that for many it will not be a binding requirement. 

Second, the requirement will exclusively apply to new loans, and this will only feed slowly through to the economy. Third, amortisation does not affect the actual housing costs. 

"However, it is an open question to what extent households distinguish between costs and expenditure. A reduction of the tax deduction on interest rate expenditures (30% of total interest expenditures can be deducted) would potentially have a considerable impact on home prices. If this deduction was abolished, home prices would have to decline by 30% for housing costs to remain unchanged", says Nordea Bank. 

But if households have already incorporated the risk of tax deduction being scrapped, or of higher interest rates in general, the effect on home prices should be less pronounced. 

Only a gradual phase-out of tax deduction as from 2017, similarly to what has been the case in Denmark. Other measures to halt developments in the housing market are not expected.