A credit guarantee is an insurance policy that lenders can take out for loans on new and renovated housing, and when purchasing real estate to be converted into cooperative, tenant-owner housing. The credit guarantee provides the lender with protection against credit losses and reduces the need of final borrowing or private capital investment for those who build housing.
Scope of the guarantee
Credit guarantees may be given for new or renovated single-family homes and apartment buildings, either for rent or tenant-owner apartments. Credit guarantees can also be given for new or renovated owner-occupied houses and apartments, and when converting into cooperative tenant-owner housing.
Credit guarantees can be given for loans of up to 90% of the market value, assessed without regard to speculative or temporary conditions. For buildings that have cooperative tenant owner apartments, a guarantee is given up to 95% of the market value. In areas with low market values, the amount of the credit guarantee may correspond to a standard calculated amount.
Applying for a guarantee
Boverket (the National Board of Housing, Building and Planning) can make a preliminary assessment and decision on the feasibility of a guarantee before building starts. A preliminary assessment may be important for financing, both for loans during the construction period and for final financing. A preliminary assessment can be sent to the lender and to the borrower/developer. When lenders and borrowers are in agreement on financing, it is the lender who applies for a credit guarantee. The guarantee agreement lays down the conditions and the fee for the guarantee. The fee for a particular guarantee depends on the risk of the project in question.
Compensation from the guarantee
The credit guarantee takes effect if the borrower does not fulfil its commitments to the lender and the property must be sold as a result. In some cases, compensation may be provided without the property being sold, but Boverket's approval is required for this. When the guarantee takes effect, Boverket takes over the lender's claims on the borrower.