One of the most intriguing aspects of the Swiss property problem – which primarily was the result of the persistent and extremely low negative interest rate – is how the share of adjustable-rate mortgages has grown. Taking them was ‘cheaper’ than the fixed-rate mortgages, which are far riskier for banks, so more credit could have been taken with them. Of course, it would be also good to know how susceptible households became by using them, and whether they could withstand a drastic instalment-hike if interest rates increased. All in all, the economy-impeding effect of an interest rate increase in such an environment would be even more extreme than usual, so the actions of the Swedish central bank are rather limited if it wants to tighten – in other words, ‘the interest rate is the new Swiss franc’. For now, only in Sweden.
Source: Vakmajom on Facebook