Näktergal blog

Why the cost-of-living crisis is good news for the Swedish mortgage market.

11th November 2022 - 6 min read

TL;DR

With record inflation and substantial increases in the cost of living, consumers are having to look at new ways to reduce their outgoings. As a major bill, the monthly mortgage payment is now coming under increased scrutiny, resulting in more customers shopping around for the best rates, and increased market share for agile challenger lenders. Competition is heating up, creating new opportunities for increased innovation and digitalization in the Swedish mortgage market. It’s now up to lenders and customers as to whether they take advantage of all the opportunities that this change has to offer.

With the cost of everything from a cup of coffee to a brand-new car going up, consumers are having to become more price conscious. While these changes have many wide-ranging implications, they also create new opportunities for lenders, customers, and competition in an increasingly dynamic mortgage market.

The rising cost of living in Sweden.

The price that consumers pay for their everyday essentials has gone up dramatically over the last year, with inflation at 9% (customer price index with fixed interest rate, CPIF) and the cost of food and non-alcoholic drinks up by 14%. The monthly mortgage payment may have been viewed as a stable bill in the past, but with mortgages representing around 82% of households’ total loans, and mortgage rates increasing, shopping around is now becoming essential.

What does this mean for the Swedish mortgage market?

With increased scrutiny from customers looking to compare rates in a bid to reduce their outgoings, competition is heating up. While traditional banks fight to retain their position (and customers), challenger lenders are taking the opportunity to adapt their offerings and capitalize on the resulting increased mobility, rapidly gaining market share in the process.

Housing credit institutions, ‘challenger lenders’, may have only accounted for 0.6% of total lending in the second half of 2019 (19.3 billion SEK as of November 2019), but this is certainly not the case today. With their popularity skyrocketing in recent years, they now account for an impressive 4.8% of new lending to households (in the last 12 months, as of June 2022). Previously perceived as less reliable by some, they are now seen as an effective way to negotiate and get better terms. Furthermore, with lower overheads due to agile digital technology, challenger lenders can offer more attractive rates, as well as fast and efficient sign-up processes.

Opportunities for Swedish mortgage customers.

While shopping around for a new mortgage, comparing rates, and reading copious small print may seem tedious and time consuming, in the current climate, it can certainly prove worthwhile. Despite the gross margin on mortgages decreasing in some cases, there is still room for negotiation (Director General of the Swedish Financial Supervisory Authority (FI), Erik Thedéen).

The first step for customers is to educate themselves by comparing lenders’ gross margins on the FI’s website, and secondly to be prepared to change banks. For example, if a household with a loan of 5 million SEK could swap to a new lender and reduce their mortgage rate by 0,8 points then they could make a saving of over 40,000 SEK per year. With so much money involved, and substantial savings to be made, it’s easy to see why customers are actively on the lookout for better mortgage rates, making the Swedish mortgage market an attractive proposition.

Opportunities in mortgages for traditional banks.

What does this mean for banks? More innovative approaches are required, and quickly. With customer habits changing, increased demand for more competitive rates, and higher Customer Experience (CX) expectations, flexibility and agility are key if they are to avoid losing customers, as well as market share. While this may seem daunting, banks may be surprised just how quickly cost-effective changes can be made.

By implementing cloud-based mortgage modules designed to automate costly resource-intensive processes, lenders can reduce overheads, increase efficiency, and create great consumer experiences in only 3-6 months (on average). In addition, the resulting cost savings can provide more room to maneuver where profit margins are concerned, enabling banks to offer more competitive rates to under-pressure customers looking to save where they can.

Conclusion - there is more opportunity than ever for us to negotiate our mortgages!

“Innovation is the ability to see change as an opportunity — not a threat”. — Steve Jobs. The increased cost of living is having impacting customer behavior, but it’s also creating opportunities for innovation and digitalization in the Swedish mortgage market. It’s now up to lenders and customers as to whether they take advantage of all the opportunities that this change has to offer.