Is Swedish Household Debt Too High? Solvency, Liquidity, and Debt-Financed Overconsumption

Swedish authorities and international organizations that monitor and comment on Swedish economic policy have argued that Swedish household debt is too high and a threat to financial and macroeconomic stability (FMS). But household debt may become a threat to FMS under essentially three conditions: (1) Households’ debt becomes too high relative to house-hold assets; households’ solvency is not good. (2) Households’ debt service becomes too high relative to incomes and payment capacity; households’ liquidity is not good. (3) Households use home-equity withdrawals (HEWs)—made possible by rising housing prices—to finance an unsustainable overconsumption of macroeconomic significance.
The analysis covers both the borrowers of the total stock of mortgages and the new borrowers of new mortgages, not—as is common in Sweden—only the new borrowers and the new mortgages. The total stock is much larger, its borrowers are many more, and they matter much more for FMS than the new mortgages and the new borrowers.
Two structural features mitigate risks from the Swedish household debt. First, on a closer look, mortgages are in fact a safe cash cow for banks and contribute to financial stability. Second, the mortgage rates are not exogenous but indirectly controlled by the Riksbank and its policy rate. The Riksbank sets the policy rate to maintain macroeconomic stability and to contribute to financial stability.
Regarding condition (1), aggregate household assets are much larger and have grown much faster than the debt. Net wealth was twice the debt in 1985, five times the debt in 2024. LTV ratios among the borrowers of the mortgage stock are much smaller than those among the new borrowers. A full 78% of the borrowers of the stock have home equity exceeding 30%, which is more than any housing-price fall during the last 50 years. Solvency is good. Regarding condition (2), the debt service of the borrowers of the stock is not high relative to incomes and substantially lower than that of the new borrowers, because lower loan-to-income and LTV ratios imply that both interest and amortization payments are lower. Liquidity is good. Regarding condition (3), there is no indication that there is any debt-financed overconsumption (undersaving) of macroeconomic significance. The HEW recorded by the Swedish FSA is not unusually high, the saving rate is close to a historical high, and the share of durable consumption in total consumption expenditures is normal.
Thus, none of the three conditions is present. Swedish household debt is neither too high nor a threat to financial and macroeconomic stability.