Credits: Per Pixel Petersson/imagebank.sweden.se
Are you moving to Sweden and considering buying a property? After a period of 25 years of almost unwavering growth, the property market has finally turned, offering more value for money but also requiring more caution before making any investment.
Crazy rental market prices have made buying an attractive prospect
A longstanding shortage of accommodation in major Swedish cities such as Stockholm, Gothenburg and Malmö has pushed up rental prices to record levels. The lack of availability of apartments and houses at affordable rental prices combined with low interest rates have helped fuel property prices over many years. Swedes have been bidding up prices with what many call “funny money”
Stormy times and falling prices on the property market
Sweden has been the European nation hardest hit by a global property upset triggered by the steep rise in interest rates last year that abruptly ended a decade of virtually free money. Prices have been falling since the central bank started to hike the cost of borrowing and house prices are down by up to one-fifth since their March 2022 peak. Rising interest rates have meant that the “funny money” has turned into real and painful money for many Swedish homeowners.
Swedish homeowners are extra vulnerable to interest rate hikes
Sweden is one of Europe’s wealthiest states and the biggest Nordic economy, but it has an Achilles Heel – huge lending to homeowners. Swedes are twice as heavily indebted as Germans or Italians. Most swedes have also neglected to insure themselves against high interest rates. From an international perspective, Swedish households stand out on this point. The vast majority of homeowners in Sweden have opted for variable interest rates rather than binding their mortgages. Interest rate hikes are therefore felt more quickly and cause more pain here.
Further interest hikes are expected
Sweden’s central bank raised the key interest rate last week by 0.25 percentage points from 3.75 to 4 percent and flagged that further rate increases are likely. This is the eighth interest rate hike in a row and was broadly expected by Swedish banks and financial experts. This is the highest that Sweden’s key interest rate has been since October 2008. The central bank also warned that further increases are likely. Their current prognosis is that the key interest rates will hit 4.10 percent by the third quarter of 2024 before dropping slightly dropping slightly to 4.04 percent by the third quarter of 2025 and to under 4 percent in 2026.
Buying a newly built home entails higher risk
It is worth noting that signing up to buy a newly built apartment or house carries a higher risk in Sweden. Before a new home is fully built, the buyer signs a preliminary agreement that entails a legal right, and obligation, to buy the home when it is fully built. This may also apply if the bank has withdrawn the loan promise or if the apartment looks different to what was agreed upon.
For some time now, the financial risk has been quietly passed on by construction companies to unwitting private individuals. According to Swedish law, the purchase of a newly built home can be canceled if the fee is raised significantly from the originally agreed price. This has been happening a lot recently due to interest hikes between the period of signing a contract and the home being completed. However, what constitutes “significantly” has not been specified in law. Cases are now coming to court to rule on disputes of whether costs as high as 40 % and upwards count as significant increases.
New figures from the mortgage institute SBAB indicate that the sale of newly produced homes is plummeting and that more and more people are withdrawing from their purchase contracts, even though they may lose their deposits. As a consequence, the number of bankruptcies in construction is now increasing.
The Swedish government is focusing on raising confidence
For months, Sweden’s government has sought to play down a property crisis that has stifled confidence in the Nordic state, repeating a simple message: While some companies are in trouble, the country is not and the economy is in good shape. It is true that government borrowing and their financial management has been far more cautious than Swedish homeowners’ approach.
Weak Swedish crown offers more property for your money
A further interesting factor for internationals looking to buy in Sweden is that the Swedish crown has lost 17.5% against the Euro in 18 months. Although this has led to a belt-tightening exercise for many Swedes, it offers a clear advantage to anyone entering the Swedish property market and transferring the necessary deposit or additional funds from aboard.
Transparent and fast buying process
The process of buying a home in Sweden is quite transparent and under normal circumstances, the market moves quickly with properties often sold within weeks or sometimes even days of being advertised. This does, however, mean that potential buyers need to do their research thoroughly to understand what they are getting into.
Expert advice is available
Relocate To Sweden helps internationals who wish to explore the property market and buy a home in Sweden. We can assist with the entire process, from market insight to identifying suitable properties, arranging surveys, assisting with contract completion and even utilities set-up. Our home buying consultation service provides all the information you need to know about the buying and selling process in Sweden, including a full overview of the costs and risks involved. We can also advise on locations and market trends, as well as the likely investment security of specific properties you may be considering, including options and obligations if you were to leave Sweden. Contact us for more information or to book an appointment by emailing us at info@relocatetosweden.com or call us on +46 8 361 011.
Relocate to Sweden provides expert advice and hands-on help for companies recruiting internationally or transferring staff to Sweden. We help your international recruits with the entire relocation process including immigration, home finding, tax consultancy, registration with Swedish authorities, schools, health care and intercultural training. We also provide private relocation services. Email us at info@relocatetosweden.com or call us on +46 8 361011 if you would like help. You can also read more about our relocation services at www.relocatetosweden.com or follow us on social media for tips and advice.
