Quite a few people know that the Riksbank subsidizes loans at 1% interest. But the crux of the matter is to take part in a generous 1.75 million loan, you have to bet on a career as a bureaucrat.
I thought for a while about how the Riksbank's officials view their own home loans. To my surprise, I heard about their generous staff loan where the interest rate is significantly lower than the market rate and for the white-collar workers it is around 1%. With interest rate conditions like these, one has to ask the question whether officials really become objective when it comes to housing policy, the interest rate and the inflation targets.
Unfortunately, I found nothing of substance about salaries on the Riksbank's website, which should be of public interest as they determine the interest rate for us. The personnel manager replied that the Riksbank's employees are evaluated based on the following four subjective criteria when setting salaries: results, initiative, competence and cooperation.
If you are a permanent employee at the Riksbank, you can get a personal loan and it is possible to borrow up to SEK 1.75 million against collateral with a maximum of 45 years of amortization (amortization-free loans are only granted in exceptional cases) and SEK 50,000 without collateral, a maximum of 10 years amortization, (amortization-free loans are not granted here either, except in exceptional cases).
You can choose between variable or fixed interest. The variable interest rate is based on the average interest rate for the 3-month interest-fixing period with a deduction of 2.15 percentage points. The lowest interest rate for loans with a variable interest rate is 1 percent.
If we assume that the government loan interest rate was 3.20 percent (Nov. 2009, the interest they pay should be 3.20-2.15= 1.05% for a loan
The fixed interest rate is based on the average interest rate for the respective fixed interest period with a deduction of 2.15 percentage points. The interest periods are 1, 2, 3, 4, 5 and 8 years respectively. The lowest interest rate for fixed-rate loans is 1.50 percent.
For a villa, the bureaucrat can borrow up to 75 percent of the lowest value of the appraisal or purchase price. For holiday homes the corresponding limit is 70 percent and for condominiums 60 percent. But you can never borrow more than a total of SEK 1.75 million against security, regardless of how much you have paid for the villa, holiday home or apartment. With such incentives, it is likely that the bureaucrat will bet on the villa.
The idea is probably that Riksbank officials should be independent of how the interest rate is set, but the reality will probably be the opposite, i.e. that they pursue an extremely low interest rate policy.
If I could borrow 1.75 million, largely interest-free, I would spend it on a house purchase. Then I could buy a villa that is 1.75 million more expensive than what I would otherwise do, etc. Suppose it will be a villa in the 3.75 million class instead of the 2 million villa ceteris paribus. Like others, I would also be able to deduct interest on the 30% on the interest.
If I were to work as a national economist at the Riksbank at that time, there is a great risk that in my investigations I would contribute to not letting the real estate market lose value and to maintain the interest deduction - which helped drive up housing prices and is paid for by society.
My colleagues at the Riksbank who live in houses and condominiums, and who also received the million dollar loan, would very likely agree with me about the importance of the property market. And we would live in that culture and delusion. Why should we protest against current interest rate policy? Cooperation is one of the salary criteria, so who wants to make themselves uncomfortable and also risk their salary?
Anders Borg, who has a past at the Riksbank, has pursued exactly that kind of anti-housing policy during the government period. I believe that the judgment of history will be harsh on the speculative real estate policy that has been pursued in recent years.
The employee benefits are taxed on the difference between the interest paid to the Riksbank and the market interest rate. This takes place according to the Swedish Tax Agency's rules. You can read more about benefit taxation here:
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