By Daniel Dickson and Johan Ahlander
STOCKHOLM (Reuters) - Sweden plans to tighten rules on mortgages to try to chip away at mountains of household debt that threatens the stability of one of Europe's best-performing economies.
Falling interest rates, a housing shortage and tax cuts have fuelled a credit boom and sent property prices soaring, exposing Sweden to the risk of the kind of real estate crash that Ireland and Spain suffered in 2008.
Under the rules, new mortgage-holders who borrow more than 50 percent of the value of their property will have to pay back a proportion of the capital in addition to interest every year.
Four in 10 Swedes have interest-only loans, the central bank says, and on average will take a century to wipe out their debt.
At over 170 percent of disposable income, household debt levels in Sweden are among Europe's highest and have prompted the IMF among others to warn of a risk to economic stability.
"There's reason to further strengthen the resilience of Swedish households," Martin Andersson, Director General of the Financial Supervisory Authority (FSA), said.
However, Swedish authorities face a tricky policy challenge with the twin risks of deflation and rising household debt.
"These measures risk driving up household saving levels even further which could hit consumption and, in that way, growth," Nordea analyst, Andreas Wallstrom, said.
And Riksbank governor Stefan Ingves, who has long warned about the risk of soaring household debt, said the new rule would not "be enough to prevent households taking on more debt".
He said measures such as limiting mortgage tax relief and tougher capital requirements for banks must also be introduced.
"We would like to see a leverage ratio (for banks) of 5 percent from 2016," Ingves told reporters.
Sweden's four major banks - Nordea (ST:NDA), Swedbank (ST:SWEDa), SEB (ST:SEBa) and Handelsbanken (ST:SHBa) - already face some of the toughest capital requirements in Europe.
Late in October the central bank cut its benchmark interest rate to zero - below that in 2009 when the economy shrank over 5 percent - to show markets it is serious about getting inflation back up to its 2 percent target.
Headline mortgage rates have fallen as low 2.15 percent - with discounts cutting that further, and the Riksbank has warned that more measures would be necessary to cool credit demand.
The FSA said it would take a couple of months to implement the new lending rule, but that it would be flexible and that households would be able to suspend payments if they had temporary financial problems.
(Additional reporting by Johan Sennero, Simon Johnson and Niklas Pollard; Writing by Simon Johnson; Editing by Louise Ireland)