If the household has made an overly optimistic calculation of its loan costs and taken larger loans than its  2  See also Financial Stability Report 2005:2 for a more detailed discussion of house prices. 3  See also Financial Stability Report 2007:1 for the Riksbank’s analyses of households’ margins. BIS Review 56/2007  3  incomes can manage to bear, this could lead to payment difficulties. However, this is a question of each individual household to take into account. US households have had problems paying their loan costs As a whole, Swedish households currently have a good ability to pay. As many of you have probably heard, there has been rather more turbulence with regard to US mortgage customers recently. A growing percentage of US households have had problems paying their loan costs. Property prices in the United States have also risen substantially since the mid-1990s. As in Sweden the higher prices have led to increased indebtedness among households. In the United States the subprime mortgage market has also increased rapidly in recent years. This group includes in principle all mortgage customers who cannot show that they have a credit history sufficient to be granted a normal mortgage. These can be households with records of non-payment of debts, low or undocumented incomes. Thanks to the subprime mortgage market these households have been given an opportunity to enter the housing market. When US property prices rose, the competition among mortgage institutions intensified over these volumes.
Around half of these loans are at variable interest rates and can thereby be initially affected by higher interest rates, and it is households with these loans who have experienced problems in paying them. Most US households still have a good ability to pay. At the same time, the financial institutions have, on the whole, strong balance sheets. This means that even a relatively large deterioration in credit quality in this sector would only lead to limited losses for the mortgage market as a whole. On the other hand, it is not impossible that developments may affect the US households’ consumption. Are there risks with subprime loans in Sweden? Can we expect to see a similar development in Sweden? No, I do not see any risk at present that we will experience this type of development in the Swedish mortgage market. In Sweden, loans to the subprime sector comprise an extremely small percentage of the total number of mortgages, no more than 0.5 per cent. The percentage is much lower in Sweden than in the United States. This is largely because our mortgage market and the US mortgage market are very different. In Sweden, lenders focus primarily on the borrower’s ability to repay. We also have greater access to information on borrowers’ incomes and assets, which makes it easier to assess credit risks. The Swedish and US mortgage institutions also have different methods of financing their lending.