For years, Sweden has been warned that its dysfunctional housing market, plagued by under-supply and kept aloft by low rates and generous tax benefits, was a risk to the wider economy.
House prices in Sweden have almost quadrupled in the last 20 years, easily outstripping wage growth, boosted by generous mortgage tax relief, almost non-existent real estate taxes and a rental market with limited supply because of tight regulations.
"However, in the last few months, the interest rate has almost tripled making it almost unaffordable to survive," Logan said. "Our forecast is for the Riksbank to raise rates to 3.75 as a peak," Gustav Helgesson, economist at Nordea said. "I think at that level we are very near some kind of pain threshold for households."The European Commission expects Sweden's gross domestic product to contract by around 1% this year - the only country in the 27-member bloc likely to see negative annual growth.
"We have 15 years to pay back and it was all planned in a way that we could pay back even if interest rates rose," she said. All the main political parties agree an overhaul of mortgage tax relief is needed, but none are prepared to give their rivals a stick to beat them with when elections come around.Financial regulators have introduced tougher lending practices and tightened mortgage repayment rules. Sweden's banks are among the most strongly capitalised in Europe - partly as a result of worries about the housing market.
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