A key role of a bank in a housing transaction is the maturity transformation: The seller gets the full purchase price immediately, but the buyer pays off over a long period of time. In today’s environment a typical bank charges 4-5% for this service, as this is what it costs the bank to refinance itself.
If a seller is okay with not receiving all money instantly, but being payed off over time, then seller financing could be an option: Instead of using bank as an intermediary and taking a 4-5% cut, the buyer could pay the owner directly. For a 3 M SEK loan and 5% interest this would be about 150 000 SEK per year which seller and buyer can split among each other for their mutual benefit.
For the seller this is only an option if they don’t need the money immediately. It comes with a few advantages though:
The seller can negotiate a much higher purchase price, as it is still cheaper for the buyer
Payout is spread over many years, thus not triggering immediate taxation of the full capital gains.
I know this is a highly regulated environment in Sweden, but I am still wondering if seller-based financing would be an option? It might even be advantageous for brokers as they could get their comission and keep their comps high.
PS: Sorry for the English question. My Swedish is still work in progress.
A few immediate thoughts: I think there’s a huge grey area here, regarding ownership, contracts etc.
Also, what’s the incentive for the seller to do this? He/she/they would have to wait for the payment, live with uncertainty of payment and so on, and the only thing they get out of it is ½ of the interest?
Those 2,5% would be seen as income and be taxed. 1,75% is then left or roughly 100k. Add inflation to that.
I can’t see anything positive from the seller’s perspective.
Also compared to getting all the money at once, and invest it in a broad index fund, or a savings account. That would avoid the risk of being dependent on one person paying.
I think you both raises an interesting point that I missed; the time value of money and associated opportunity costs. The seller would loose out on inflation as they cannot invest the money.
I have looked in to this and there are som possibilities bur the taxation in Sweden is a lot differenst than in lets say the states.
Do you have any experiane doting this process abroad?
Im in the process of implementing this in Sweden right now.
How is the credit risk handled? A regular bank gives out thousands of loans and pool it.
I think a lease-to-buy option would be much better similar to the market for cars. I’ve seen a reverse option in Sweden where you sell the house (to redeem capital) and then rent it, a good idea for old people with bad cash flow but high-valued property
