SwedSec 2025: Mortgage Loan Prep

• SwedSec preparatory material focuses on mortgage loans for 2025.

Agenda Topics

• SwedSec
• Knowledge requirements
• Knowledge levels
• Loan definitions

What is SwedSec?

• Founded in 2001
• Aims to strengthen competence and customer protection in the finance industry
• Includes licensing tests, annual knowledge updates, and disciplinary procedures

Knowledge Requirements

• The licensing test has these three components
• Products and processes
• Economy and market
• Guidance, ethics, and regulations
• The test includes 105 questions, 15 of which are trial questions
• Passing requires at least 70% correct overall and at least 60% in each section.

Knowledge Levels Definition

• Knowing (K): Licensees must recognize and recall concepts, definitions, and facts.
• Understanding (F): Licensees must understand and explain relationships and contexts.
• Applying (T): Licensees must use formulas, rules, laws, and methods.

Loan Definitions

• Mortgage loans: Secured by a residence (for example, a home purchase).
• The mortgage cap is 85% of the property's value
• Unsecured/private loans: Not secured by any assets (for example, a computer purchase).

Products and Processes

• Focuses on various aspects of housing credits, collateral, and mortgage processes.
• Includes products and pricing of mortgage loans, rules about mortgages, different ownership types, housing types, and in-depth knowledge of the mortgage process.

Housing Credits - Products

• Mortgage/First Mortgage: Loan secured by a house or apartment.
• Deposit Loan: Temporary loan for borrowers during contract signing, often 10% of the property price.
• Bridging Loan: Temporary loan for borrowers awaiting the sale of another home
• Construction Credit: Used when property owners build or renovate extensively.
• Green Mortgage: Banks offer a rate discount for energy/climate-smart homes, determined individually by each bank.
• Loan Promise: Preliminary estimate of borrowing ability for a new home.

Housing Credits - Interest Rates

• Interest: The cost of borrowing money, expressed as a percentage.
• Variable Interest Rate: Changes every three months, determined by the bank.
• Fixed Interest Rate: Locked for a specific period, commonly 1-10 years.
• Interest Rate Differential Compensation: A fee charged for early repayment of a fixed-rate loan, based on the current interest rate, loan size, and remaining duration.

Housing Credits - Promissory Notes

• Creditor: The lender (for example, a bank).
• Debtor: The borrower.
• Simple Promissory Note: The creditor is a specific named person
• Current Promissory Note: The creditor is whoever can produce the promissory note.

Securities - Collateral & Mortgages

• Real Estate: Land divided into properties.
• Mortgage: A loan secured by the property, managed by the Swedish Land Survey.
• The mortgage deed is the bank’s security for the loan.
• Swedish Land Survey: Manages the property register and related matters.
• Property Register: Sweden’s official record of land divisions.
• Title Deed: Proof of property ownership.
• Registered Owner: The person listed on the title deed.
• Registration: Action to use the residence as security for a mortgage.
• Mortgage Deed: A document providing security to the bank, available physically or electronically.

Securities - Collateral & Mortgages Related to Housing Cooperative

• Mortgage: Loan secured by the apartment, managed by the housing cooperative.
• Notification of the mortgage is sent to the cooperative.
• Notification: Confirmation from the bank to the cooperative that the residence is collateral for a loan.
• Apartment Register: Housing cooperatives must maintain a register with information on each apartment, including owners, fees, and mortgages.
• Deregistration: When a mortgage on a cooperative apartment is paid off, the bank notifies the cooperative.

Securities - Collateral & Mortgages - Other

• Leasehold: Land owned by the municipality, leased indefinitely to a leaseholder who owns the building.
• The leaseholder pays an annual ground rent (lease fee) according to the lease agreement.
• Residential Lease: A property owner leases land to a tenant (physical person) for residential purposes, often for holiday homes.

Process of Property Transfer - Real Estate

• Transfer: Typically through sale, gift, division of property, or inheritance.
• Gift: A gift deed is created with the giver and receiver.
• Division of Property: An agreement where one party receives all or part of the property
• Inheritance: Via inheritance or will upon death.
• Purchase Agreement: Used for property sales, contains property information and conditions.
• Purchase Deed: Document finalizing the purchase, often used to apply for registration.

Process of Property Transfer - Housing Cooperative

• Transfer Agreement: Used for cooperative apartment sales, contains apartment information and conditions.
• Assignment Agreement: Used for new-build apartment sales and conversions.

Economy and Market Overview

• Focuses on personal finance and its connection to credit assessments for housing credits.
• Includes amortization, basic economic knowledge, economic theory, concepts, and how they operate in the housing and interest rate markets.

Housing Market Factors

• Pricing in the housing market: Influenced by supply and demand, interest rates, taxation, new construction, urbanization, rent control, demographics, and conversions of rental rights.
• Key players: Include the Riksbank, banks, authorities, brokers, and insurance companies.

Personal Finances

• Household budget: Overview of a household’s income and expenses.
• Housing costs: Interest and amortization, plus heating, insurance, maintenance, monthly fees, and operating costs.
• Other consumer credits: Such as unsecured loans, credit cards, and installments, can affect mortgage applications.

Credit Assessment

• Regular Income: Banks assess repayment ability mainly based on income, such as salary, dividends, or pension.
• Repayment Ability: Assessment of a borrower’s ability to pay ongoing housing and mortgage costs, considering both short-term and long-term income and expenses.
• Credit Report: Credit reporting agencies compile information on individuals, providing a "score" or risk forecast indicating the likelihood of payment default within 12 months, and a loan recommendation.

Credit Assessment - Housing Cooperative Economy

• The financial status of the cooperative is carefully assessed.
• Poorly managed organization or one with great maintenance needs could result in higher costs later on.

Amortization

• Amortization: Paying off the principal of a loan.
• Linear Amortization: Same principal repayment each month.
• Annuity Amortization: Constant monthly payment, with amortization varying over time.

Amortization Requirements

• Since 2016, Sweden has regulated amortization requirements for all banks, between 0-3%.
• Calculated based on loan-to-value ratio and debt-to-income ratio.
• Loan-to-value ratios
• Below 50%: 0% amortization
• Between 50% and 70%: 1% amortization
• Over 70%: 2% amortization
• Debt-to-income ratio
• Loans exceeding 4.5 times the household’s gross annual income: 1% amortization

Other Amortization Factors

• Amortization Basis: Provided by the bank holding the mortgage, outlining amortization requirements and the values used for their calculation.
• Value Determining Amortization: The property's initial valuation after June 1, 2016. The value is fixed for five years, with limited exceptions.
• Debt Determining Amortization: The maximum total debt on the residence since the loans were taken within the current five-year period.

Guidance, Ethics, and Regulations - Overview

• Deep knowledge of providing advice regarding the management of housing credits is necessary
• Laws, regulations, self-regulation, family law, and tax knowledge for housing credits.

Advice

• Advisor Role and Responsibility: The Consumer Credit Act requires lenders to observe Good Lending Practice, considering the consumer's interests, ensuring loan agreement comprehension, and providing necessary explanations.
• Responsible Lending: Recommendations of suitable advice and/or loans based on collected customer information.
• Conflict of Interest: Occurs when the company or advisor has interests conflicting with the customer's interests.
• Bias (Conflict of Interest): A situation where a person may be biased or has circumstances that could impair impartiality.
• Banking Secrecy: All details regarding a customer’s relationship with the bank are confidential unless publicly known.
• Secrecy applies even after engagement or employment ends, and extends to all unauthorized individuals, including relatives.

Laws and Regulations

• Consumer Credit Act: Central law for lending to individuals regarding consumer credits and mortgages, mandating good lending practices and consideration of customer interests.
• Financial Supervisory Authority: Oversees financial market companies, including - Licensing assessments, supervision of financial firms, regulatory collections, and coordination against money laundering.
• Swedish Bankers' Association: A professional organization for banks that performs self-regulation within the industry.
• Self-Regulation: The industry finds common solutions without legislation.

Family and Civil Law

• Inheritance: Fixed order for dividing inheritance; heirs are classified into different classes based on their relationship to the deceased.
• Will: Allows individuals to influence the distribution of their future inheritance, deviating from the default inheritance order.
• Inventory of Assets and Liabilities: Summarizes the deceased’s assets and debts, identifies heirs, and indicates the existence of a will.
• Power of Attorney (Fullmakt): Grants someone the right to represent another, such as in a property sale.
• Rules on the Residence of Spouses and Cohabitees: Restrictions on transferring, mortgaging, or pledging property without consent from the spouse.
• Common Residence: Residence where spouses or cohabitees live together. Gift Property: Property to be included in the division of assets that both tenants have the right to. Cohabitation Property: Property that is included in the division of property that both cohabitants have the right to. Private Property: Property which is not included in any division.

Taxes

• Property Tax/Charge: A municipal charge for small houses, at 0.75% of the assessed value, capped at SEK 9,525 for the 2024 tax year.
• Stamp Duty: A fee paid upon acquiring real property (property) and leasehold rights, at 1.5% of the price.
• Ground Rent: A fee/rent based on the leasehold agreement between state/municipality and leaseholder.
• Interest Deduction for Mortgage Loans: Borrowers can deduct 30% of interest costs up to SEK 100,000, and 21% for amounts exceeding SEK 100,000.
• Interest Deduction for Private Loans: From January 1, 2025, 30% of 50% of the interest cost can be deducted, and from January 1, 2026, the interest deduction is eliminated.
• Capital Income/Capital Gains Tax: If income is not from employment, it is taxed as capital income at 30%. Only 22/30 of the profit is taxed upon the sale of a private residence.

Explore SwedSec's 2025 mortgage loan preparatory material. This includes SwedSec overview, knowledge requirements, levels (K, F, T), and loan definitions. Essential for finance professionals seeking licensing.