As you probably read about in Mr. Poto’s previous blog post planned for FI (Finansinspektionen) to change the mortgage repayment requirements now in August 2015, but to our and everyone else’s amazement, FI stopped its own proposal. Before the proposal was stopped, everyone assumed that the new rules would start to apply this summer and therefore many Swedes are speeding up their home purchases so that they will not be subject to the new, more stringent amortization requirements. Now many people stand there and regret that they went so fast and everything is Finansinspektionen’s fault. This may feel a little unsettling, but here we will explain why FI stopped the new amortization requirements.
The House of Appeal put the stick in the wheel
In a press release on April 23, FI stated that they did not proceed with the proposal for new amortization requirements. They did not stop the proposal because they now think it was a bad proposal but rather think that households need to start paying more. As a result, households’ resilience to disruptions in the economy increases, and it reduces the risk that the Swedish economy will be adversely affected if something unexpected happens in Sweden or the outside world.
So why did they stop their own proposal? Well, it was a consequence of the Court of Appeal in Jönköping’s criticism of the proposal in a referral opinion. Supreme Court President Stella Carredo said that “Finansinspektionen’s proposal on mandatory repayment requirements would have major consequences for many borrowers and there must be clear support in the law for implementing such regulations”.
The Court of Appeal thus considered that FI had no support in the Act to implement such requirements, while FI believed that they had support in Chapter 6, Section 4 of the Banking and Financing Business Act, the so-called Health Rule on Banking and Financing Business. But the District Court considers that FI has interpreted the rule differently than the legislature intended and that the interpretation is too generous.
It is against this background that the stopped amortization requirement should be seen. FI is of the opinion that they have the power to demand an amortization claim while the House of Commons does not consider it. The powers of the Swedish Financial Supervisory Authority are thus unclear, which led them to withdraw their proposal.
What would have happened if FI had not withdrawn its proposal?
If the Swedish Financial Supervisory Authority ignored the Court’s referral opinion and still implemented its new amortization requirements, major problems could have arisen. Assume that a person who took out a mortgage (after the new rules became applicable) ignored the amortization, then the borrower had sued and ended up in court. There, the borrower had been able to refer to the Administrative Court’s referral response, and the court would then have had to decide whether the Administrative Court or FI was right. There would have been chaos in the housing market.