From this we should deduct a figure for sustainable growth in disposable income, say 4 per cent – 2 per cent real growth and 2 per cent inflation. This leaves us with 1 per cent. See Svensson (2012b). 8  BIS central bankers’ speeches  The household debt situation is also analysed in Finansinpektionen’s (the Swedish financial supervisory authority) report, The Swedish Mortgage Market. Finansinspektionen observes in this report that the loan-to-value cap has had an effect. Households’ loan-to-value ratios for new loans fell in 2011, and the percentage of houses with a loan-to-value ratio of more than 85 per cent has halved since 2009, to just under nine per cent. The banks make stringent credit assessments of borrowers using a “left-to-live-on” calculation with a high mortgage rate.17 Stress tests also show that most households that have taken out a new mortgage and which should be the most vulnerable, have a good debt-servicing ability and are resilient to increases in interest rates, falls in housing prices and increases in unemployment.18 In contrast to what was the case during the 1990s crisis, however, large interest rate increases probably will not coincide with high unemployment. Finansinspektionen’s conclusion is that “Only a limited portion of the households are affected even when simultaneously applying assumptions of sharp drops in house prices and sharp rises in unemployment, which indicates that Swedish mortgages are currently not a threat to financial stability.“ Moreover, this resilience has also been tested in real time.
There then remains only 1 per cent of the debt of 170 per cent, that is, the net debt service required in the long run to keep the debt ratio constant is only 1.7 per cent of disposable income.16 With this reasoning, a debt ratio of 170 per cent is sustainable with a considerable margin. Figure 3 Capital over assets for households, some large listed companies and Swedish banks Per cent 80 70 60 50 40 30 20 10 0  Sources: Dagens Industri (capital/assets 2011 for listed companies and Swedish banks) and the Riksbank (household net wealth/assets). surplus of disposable income in a “left-to-live-on” analysis – which is described in footnote 17 – is around 58 per cent. The current value of this surplus is then around 1 000 per cent of disposable income. When these figures are compared with a debt of 170 per cent and added to real and financial assets of 510 per cent, households’ leverage ratio and debt-servicing ability undoubtedly appear to be pretty good. 15  Isaksen, Lassenius Kramp, Funch Sørensen and Vester Sørensen (2011). 16  A high mortgage rate after tax could be 5 per cent. A long-run level for the repo rate of 4 per cent plus an historically-high spread of 3 percentage points gives a mortgage rate before tax of 7 per cent and after tax of approximately 5 per cent ((1-0.3)x7=4.9).