New Mortgage Rules: Easier to Buy, Harder to Borrow More

New mortgage rules taking effect April 1st will allow homebuyers to borrow up to 90 percent of a property’s value, an increase from the previous 85 percent limit. This reduction in required down payments aims to lower barriers to entry in the housing market.

However, a key detail that has gone largely unnoticed is a simultaneous reduction in the ceiling for add-on loans – from the current 85 percent of a property’s value to 80 percent.

Homeowners planning renovations or maintenance financed through an expanded mortgage will find they have access to less capital once the new regulations are in place.

“I’m seeing concerning trends – both from customers and acquaintances, even those generally financially savvy – who have missed that the limits aren’t the same,” says Pia Tverin, Head of Mortgages at Nordea.

Nordea has observed customers planning renovations postponing action until April, mistakenly believing they’ll be able to increase their mortgage to 90 percent. In reality, they will qualify for a smaller renovation loan if they wait.

“Many have completely missed that it’s going in the opposite direction,” Tverin stated.

In addition to the lowered ceiling, a “tranquility rule” is being introduced to prevent frequent expansion of mortgages. Starting April 1st, banks will only allow a revaluation of a property every five years if the purpose is to increase borrowing capacity, lower amortization, or make other changes based on the property’s value.

This means that a new homeowner will have to wait at least five years before being able to expand their mortgage to finance a renovation or maintenance project. In practice, it could take even longer, as borrowers must also reduce their loan-to-value ratio to below 80 percent before additional borrowing is possible.

The intention is to curb over-leveraging, but those unaware of these changes and lacking a financial buffer could be forced into more expensive loans if unexpected expenses arise, Tverin warns.

“This could create problems for new homeowners. If you haven’t fully considered the costs of maintaining a home, or if you encounter unforeseen issues and lack the borrowing capacity through your mortgage, you’ll be forced to consider unsecured loans.”

Unsecured loans carry both higher interest rates and, since January 1st of this year, no longer qualify for tax deductions.

“If you’re in a buying situation and anticipate renovation needs in the near future, Try to factor that into your purchase. And for customers who already own a home and plan to make improvements: carefully review your current loan-to-value ratio, and if you’ll need to increase your loan to 85 percent, now is the time to act,” Tverin advised.

According to Claudia Wörmann, a personal economist at Bostadsrätterna, it will be crucial to monitor a property’s future maintenance needs as it becomes more difficult to borrow. Her advice is to look five to six years ahead.

“It could lead to delays when conditions worsen. But with home maintenance, it’s really like going to the dentist – it’s always best to address it promptly. Otherwise, it will only get worse,” she said.

According to Wörmann, renovation properties may become less attractive on the housing market once the new rules take effect.

“We generally have well-maintained properties. But there could be a greater difference between renovated properties and so-called ‘diamonds in the rough’ now,” she stated.

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