The Politics of Mortgage Regulation in the Netherlands and Sweden.

In spite of providing an extensive and comprehensive social protection system, the Netherlands and Sweden also register some of the world’s highest consumer debt as share of GDP. This high level of household indebtedness mostly consists of mortgage loans driven by liberal lending terms and sophisticated home financing institutions. During the global financial crisis, high household debt levels slowed economic recovery as many households quickly curbed their consumer spending. The steep decline in consumer spending in conjunction with the decline in exports/trade posed a dilemma for policy officials. In the Netherlands, the crisis created an opportunity to tackle the ‘third rail’ of consumer credit by introducing tighter lending requirements while prohibiting exotic and high risk mortgage products (interest-only mortgages or endowment mortgages). In contrast, the Swedish political leadership was unable to recalibrate mortgage lending to avoid ‘overconsumption’ of mortgage debt and thus protect households against sudden economic downturns and negative equity. We advance two arguments to account for this divergence. First, the depth of the crisis was much deeper in the Netherlands than Sweden, creating a sense of urgency and an opportunity to push through (modest) mortgage financing reforms. Second, Dutch banks had been very creative by offering mortgage products with very high risk factors. Swedish banks have mostly stayed away from exotic and complicated mortgage products and have mostly relied on extending the length of the mortgage loan from a conventional 30 year to a 50 or even 100 year loan.