Finnish supervisor keeps home loan cap at 85%


TABLE The Finnish Financial Supervisory Authority (FIN-FSA) on Thursday extended its decision to impose a lower lending cap to the value of home loans.

The ceiling for home loans will therefore remain at 85% of the value of the property for everyone except first-time borrowers. The cap for new borrowers, meanwhile, will remain at 95% of the value of the property.

The board said it will clarify its recommendation that lenders exercise restraint in making loans that are large relative to the borrower’s income and have a longer than usual repayment period in the second quarter of the year.

“Lenders should assess the amount of credit to extend so that the applicant can repay their debts even if loan interest rates were to rise significantly or if the household’s own finances were exposed to severe shocks” , highlighted Marja NykanenChairman of the Board of Directors of FIN-FSA.

The FIN-FSA considered that the current risks to the financial system and the global economy stem primarily from the geopolitical situation, high inflation and its effect on funding conditions, and the continuing coronavirus pandemic.

Although the Russian attack on Ukraine has heightened acute risks to financial stability also in Finland, this is not the only source of concern for FIN-FSA. The Finnish financial system, he pointed out, also contains several important structural vulnerabilities, such as the high level of household debt.

Calculations by Statistics Finland and the Bank of Finland reveal that Finnish households on average had indebtedness equivalent to 134.5% of their disposable income at the end of September 2021. The percentage increased by 12.2 percentage points. percentage over the past five years and 22.4 points over the past 10 years.

Interest expense as a share of disposable income, on the other hand, fell from 2.6% in September 2011 to 1.7% in September 2016 and 1.5% in September 2021.

FIN-FSA said its board was assessing the effects of the war on financial stability and the need to deploy macroprudential instruments.

Aleksi Teivainen – HT

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