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STOCKHOLM, May 22 (Reuters) - Persistent house price growth in Sweden from already over-valued levels, coupled with a continued rise in household debt poses risks of a disorderly housing market correction, the EU Commission said on Monday.
In its yearly review of the Swedish economy, the EU Commission said wariness of mounting risks among the Swedish authorities is high, but policy steps implemented has so far not been sufficient.
"Overall, policy gaps remain in the area of housing-related taxation, the macroprudential framework, and in addressing bottlenecks for new housing supply as well as barriers to efficient usage of the existing housing stock," the Commission said.
The Commission recommends the Nordic country to gradually limit the tax deductibility of mortgage interest payments.
Swedish house prices have sky-rocketed over the last two decades, fuelled by lower interest rates, generous tax breaks and low levels of building. Both the financial watchdog and the central bank has long flagged that the surge is unsustainable.
Reporting by Johan Sennero; Editing by Daniel Dickson