Scandinavia’s mortgage model is adding risk to the region’s economies as too few homeowners pay down their debt, Moody’s Investors Service said.
While interest-only mortgages in Sweden and Denmark helped households keep up payments during the crisis, consumers now rely too much on the loans, according to Oscar Heemskerk, vice president and senior credit officer at Moody’s.
“We see vulnerability in that model,” he said in a June 5 interview in Stockholm.
At the current pace of amortization, Swedish households will need 140 years on average to repay their home loans, the Financial Supervisory Authority estimates. In Denmark, interest-only loans make up more than half the country’s $490 billion mortgage market, central bank figures show. Danes carry the world’s highest debt burden relative to disposable incomes, at more than 300 percent, the Organization for Economic Cooperation and Development estimates. Debt by that measure in Sweden and Norway hit record levels this year, central bank figures show.
Interest-only mortgages have made housing more affordable, helping send property prices to all-time highs this year in Norway and Sweden. In Denmark, households are still trying to recover from a burst property bubble that’s sent prices down more than 20 percent since their 2007 peak.