In addition, the average size of new mortgages has increased during a coronavirus pandemic.
“Household indebtedness is worrying from a national economic perspective, as households will have to cut consumption if debt service costs rise or the economic situation deteriorates.” Marja Nykänen, Deputy Governor of the Bank of Finland, was quoted said written by Helsingin Sanomat.
“This, in turn, reduces consumer demand for the goods and services sold by companies, leading to a further deterioration in the economic situation. As companies begin to lose income, there is a risk that banks ’corporate loan losses will start to increase. “
Bank of Finland on Tuesday urged the government is taking steps to mitigate the risks associated with household indebtedness, for example by introducing a debt ceiling and a maturity ceiling for mortgages. The clarified cap should be based not only on the mortgage but also on the housing company loan and the household consumer credit liability.
“Rising household indebtedness and loosening the terms of new loans will increase the need for new macro-prudential instruments. The upper limit and maturity limit for mortgages should be introduced without delay in order to stop the loosening of loan terms, “Nykänen emphasized.
The maturity of new mortgages is usually about 25 years. However, both 30- and 35-year maturity loans have become more common in recent years.
The Bank of Finland also emphasized that the share of housing corporations’ loans in total household debt has continued to increase as more and more consumers take responsibility for the share of housing loans taken out when buying a house, which may obscure their perception of the total cost of housing.
“Mortgage loans can blur home buyers’ understanding of the total cost of housing and encourage them to buy houses that are expensive in relation to their own debt and the sustainability of security,” Nykänen described.
The Authority considers that housing company loans should be regulated in the same way as mortgage loans as far as possible, for example by setting a maturity limit and a loan value for housing company loans.
Overall, the Finnish economy has weathered the economic crisis caused by the coronary virus pandemic better than expected, with companies and households benefiting from strong fiscal and monetary stimulus, bank resilience, direct business support and macro-prudential easing, and other banking regulation.
At the same time, Finnish banks have succeeded in improving profitability despite the pandemic and have maintained good lending and loss capacity. They are still exposed to risks related to the housing market in the Nordic countries, and house prices are rising, especially in Norway and Sweden.
“Housing market risks will increase if borrowing is based on expectations that interest rates will remain exceptionally low for a long time and property values will continue to rise in urban centers,” the Bank of Finland said.
Aleksi Teivainen – HT
Source: The Nordic Page