Considering the dramatic price increases on the Swedish housing market in recent years, this is a completely reasonable claim. The higher housing prices are, the greater the loan required to finance the purchase of a house or flat. Finansinspektionen’s mortgage survey shows that the debt ratio for new mortgage borrowers averages 370 per cent, which is a higher debt ratio than for existing mortgage holders. On the other hand, I do not think that the difference between new mortgage borrowers and those who have owned their homes for some time is as big as I had perhaps expected. This is because people who have owned their homes for a while have had the opportunity to reduce their debts. The fact that the difference is not bigger could indicate that the households reduce their debts at a relatively slow rate. Let me return to this a little later. The debt ratio is highest among low and middle-income earners One conclusion of the government’s inquiry “Over-indebtedness in a credit society” is that the highest debt ratios are to be found among those with the highest incomes. This is the picture you get if you look at the population as a whole, that is if you also include individuals who have an income but no debts. This means that the inquiry really shows that low-income earners do not take loans to the same extent as high-income earners. If we instead look at debts in relation to incomes only for those individuals who have debts we get a different picture.
3  One explanation of this is that a household’s propensity to consume is affected by how highly indebted the household is. Studies have found that a highly-indebted household reduces its consumption more in a crisis than a lowly-indebted household. See, for example, Andersen, A.L., Duus, C. and Jensen, T.L. (2014), “Household debt and consumption during the financial crisis: Evidence from Danish micro data”, Working Paper, Danmarks Nationalbank and Mian, A. Rao, K. and Sufi, A. (2013), “Household Balance Sheets, Consumption, and the Economic Slump”, Quarterly Journal of Economics 128(4), pp. 1687–1726. 2  BIS central bankers’ speeches  total level of indebtedness. 4 I would also like to point out the difficulties that many individuals experience when bad times coincide with high private debts. An additional factor is that mortgage lending forms an important part of the Swedish banks’ assets, which means that the financial system is sensitive to risks linked with indebtedness. The banks fund as much as three-quarters of their lending for housing purposes on the market for covered bonds and access to funding on this market is based on Swedish and foreign investors being highly confident in the safety of the the underlying assets. If confidence wanes, funding costs may increase and access to funding may decline. This would disrupt the functioning of the financial system and thus have a direct negative effect on financial stability.