Household indebtedness in Sweden and implications for financial stability - the use of household-level data

Household borrowing has increased considerably in a number of countries over the past two decades, both in absolute terms and relative to household income (see CGFS (2006), BSC (2007), Girouard et al (2007) and Warnock and Warnock (2007)). Two factors that have probably been important in the increase in indebtedness are financial deregulation, which has decreased the level of credit rationing, and lower interest rates, in both nominal and real terms. These two factors, combined with such other factors as an overall benign economic environment and demographic pressures, can probably go a long way towards explaining the rapid growth in household indebtedness in Europe. At present, aggregate household indebtedness in Sweden is slightly over 70% of GDP, nearly double the level in 1970. The upward trend in household indebtedness in Sweden during the last decade parallels that of many other European countries (see Graphs 1 and 2). While the general upward trend is clear, notwithstanding a few exceptions such as Germany, it is also worth noting that there are significant differences in the level of household indebtedness among the surveyed countries. These differences are, of course, due to differences in owner occupancy rates, but differences in national housing finance markets also play an important role.