Report: Banks’ administration of amortisation requirement exemptions

The Swedish financial supervisory authority, Finansinspektionen (FI), has published the results of its thematic review of banking and lending practices with respect to exemptions from the annual amortization requirements on real estate loans. Specifically, current Swedish rules require that a minimum of 2% of the principle of a real estate loan must be amortized (paid back) annually, with some special provisions applying for loans whose values are extraordinary high compared to the value of the underlying real estate or compared to household income. The current rules also provide for some exemption from these amortization requirements in special circumstances, one of these circumstances being that the borrower has experienced a significant decline in his or her financial situation. Other requirements for granting such exemption include:
– the decrease in the financial capabilities must have occurred after the borrower obtained the mortgage and
– institutions must still apply prudent lending practices and decide on an ease of the down-payment restriction after having conducted an individual assessment of the borrower’s situation (current income, expenses, and savings).
In view of the high inflation and tight household incomes, FI has now reviewed the practices of Swedish financial institutions with respect to the application of the exemption and found that banks have improved their practices as regards the management of exemptions from amortization requirements. In fact, banks have made notable enhancements to their processes for handling these exemptions, which have become more prevalent as households face greater financial strain and there is a greater awareness in society about the option of obtaining an exemption.
Nevertheless, institutions are reminded of the above noted principles they shall adhere to when deciding on any such exemption.