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STOCKHOLM, April 6 (Reuters) - The risk of a fall in Swedish house prices is higher than normal and many households are highly leveraged, the country's financial watchdog warned as it presented its annual survey of the mortgage market on Thursday.
Swedish house prices have sky-rocketed over the last two decades, fuelled by lower interest rates, generous tax breaks and low levels of building and the watchdog has long flagged that the surge is unsustainable.
"The combination of extremely low interest rates, strong growth and very high house prices can and will eventually reverse into something different and we need to ensure that Swedish households are prepared for that," said Henrik Braconier, chief economist at the Swedish Financial Supervisory Authority.
The watchdog has introduced several measures over the past couple of years to stem the soaring mortgage lending. In 2016, it made it mandatory for highly leveraged new borrowers to pay down the part of the principal on mortgage loans.
"It has had a dampening effect on household debt," Braconier said, adding that new mortgage takers were borrowing less and were buying cheaper properties.
He said the watchdog would get back in the coming months with additional measures if needed.
At the same time, he said the households did not currently pose a big threat to financial stability in the Nordic country as they on average had sufficient margins while banks were well capitalised. (Reporting by Johan Ahlander; editing by Niklas Pollard)